Contents
1 SALES AND DISTRIBUTION MANAGEMENT SYSTEM ............................................... 7 1.1 1.2 Common Definitions and Vocabulary.............................................................................. 7 Sales Budgeting ................................................................................................................ 8 Market Segmentation ................................................................................................ 9 Customer Segmentation .......................................................................................... 10 Product Segmentation ............................................................................................. 11
1.2.1 1.2.2 1.2.3 1.3 1.4
Sales Flow ...................................................................................................................... 12 Customer Enquiry and Preparation of Quotation ........................................................... 12 Customer Enquiry ................................................................................................... 12 Preparation of Quotation ......................................................................................... 14
1.4.1 1.4.2 1.5
Customer Order Processing ............................................................................................ 15 Purchase Order (PO) ............................................................................................... 15 Sales Order (SO) ..................................................................................................... 17 Invoice (Bill) ........................................................................................................... 18 Steps in Order Processing ....................................................................................... 19
1.5.1 1.5.2 1.5.3 1.5.4 1.6
Pending Customer Orders .............................................................................................. 19 Procedure to handle Pending Orders....................................................................... 20
1.6.1 1.7
Sales Analysis ................................................................................................................ 20 Importance of Sales Analysis.................................................................................. 20 Computerized Sales Analysis: ................................................................................ 21
1.7.1 1.7.2 1.8
Sales Management.......................................................................................................... 21 Functions of Sales Management ............................................................................. 22 Objectives of Sales Management ............................................................................ 22 Principles of Sales Management ............................................................................. 22 Problems in Sales Management .............................................................................. 23
1.8.1 1.8.2 1.8.3 1.8.4 1.9
Distribution Management System .................................................................................. 24 Marketing (Distribution) Channel........................................................................... 24 Different intermediary Channels............................................................................. 25 Different forms of Channels ................................................................................... 25
1.9.1 1.9.2 1.9.3
1.9.4 1.9.5 1.10 1.11 1.12 2
Importance (Need) of Distribution Channels .......................................................... 26 Challenges of Distribution Channels ...................................................................... 27 Components of designing Sales Management System ............................................... 27 Case Study on Sales and Distribution Management System ...................................... 29 Exercise ...................................................................................................................... 30
HUMAN RESOURCE MANAGEMENT SYSTEM ........................................................... 33 2.1 Introduction .................................................................................................................... 33 Organizational Structure Chart ............................................................................... 33 Introduction to Human Resource Management ...................................................... 34 Evolution of HRM .................................................................................................. 35 Scope (Functions) of HRM ..................................................................................... 35 Challenges before the HR manager ........................................................................ 36 Significance (Need) of HRM .................................................................................. 37 Human Resource Management Systems (HRMS) .................................................. 37
2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.1.6 2.1.7 2.2
Employee Database and Knowledge Management System ........................................... 38 Employee ................................................................................................................ 38 Employee Database ................................................................................................. 38 Knowledge Management System ........................................................................... 40
2.2.1 2.2.2 2.2.3 2.3
Recruitment – Technique ............................................................................................... 40 Recruitment process ................................................................................................ 40 Recruitment objectives............................................................................................ 43 Factors affecting Recruitment ................................................................................. 43 Sources of Recruitment ........................................................................................... 44 Purpose (Importance) of Recruitment ..................................................................... 45 E-Recruitment ......................................................................................................... 45
2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 2.3.6 2.4
Employee Appraisal – Performance Efficiency ............................................................. 46 Need (Objectives) for Appraisal ............................................................................. 46 Commonly used Appraisal methods ....................................................................... 47 Performance Efficiency and Appraisals.................................................................. 48 Types of Performance Pay ...................................................................................... 49 Problems (Limitations) in Performance Appraisal ................................................. 49
2.4.1 2.4.2 2.4.3 2.4.4 2.4.5
2.5
Employee Training ......................................................................................................... 49 Objectives of Training ............................................................................................ 50 Assessing Training needs ........................................................................................ 50 Training methods .................................................................................................... 50 Ways to make Training effective ............................................................................ 52 Benefits from Training and Development .............................................................. 53 Training Process...................................................................................................... 53
2.5.1 2.5.2 2.5.3 2.5.4 2.5.5 2.5.6 2.6
Leave Accounting and Payroll ....................................................................................... 54 Leaves Policy .......................................................................................................... 54 Leaves Application ................................................................................................. 54 Payroll ..................................................................................................................... 55 Advantages of payroll software .............................................................................. 56 Payroll Reports........................................................................................................ 56 Various HR Reports ................................................................................................ 57
2.6.1 2.6.2 2.6.3 2.6.4 2.6.5 2.6.6 2.7 2.8 2.9 3
Components of designing Human Resource Management System ............................... 60 Case Study on Human Resource Management .............................................................. 64 Exercise .......................................................................................................................... 65
MANUFACTURING / PRODUCTION PLANNING CONTROL SYSTEM .................... 67 3.1 3.2 Introduction to Production System ................................................................................. 67 Capacity Requirements Planning for Equipment ........................................................... 67 Capacity Planning ................................................................................................... 67 Manpower Planning ................................................................................................ 68
3.2.1 3.2.2 3.3
Material Requirements Planning (MRP I) ..................................................................... 69 Objectives of MRP .................................................................................................. 70 MRP Inputs ............................................................................................................. 70 MRP Outputs .......................................................................................................... 70 Manufacturing Resource Planning (MRP II) .......................................................... 71 Advantages of MRP ................................................................................................ 71
3.3.1 3.3.2 3.3.3 3.3.4 3.3.5 3.4
Production Planning and Control ................................................................................... 72 Objectives of PPC ................................................................................................... 73 Functions of PPC .................................................................................................... 74
3.4.1 3.4.2
3.4.3 3.4.4 3.4.5 3.4.6 3.4.7 3.4.8 3.5
Factors affecting PPC ............................................................................................. 74 Advantages of PPC ................................................................................................. 74 Work Order Management ....................................................................................... 74 Functions of Work Order Management .................................................................. 75 Categories of Materials ........................................................................................... 75 Economic Order Quantity (EOQ) ........................................................................... 75
Material Procurement ..................................................................................................... 76 Purchase Indent ....................................................................................................... 76 Vendor Analysis...................................................................................................... 77 Bill of Materials (BOM) ......................................................................................... 78 Receipt of Material ................................................................................................. 79 Bin Card .................................................................................................................. 81
3.5.1 3.5.2 3.5.3 3.5.4 3.5.5
3.6 Case Study on Manufacturing / Production Planning Control System and Sales and Distribution Management System............................................................................................. 82 3.7 4 Exercise .......................................................................................................................... 85
BANKING ............................................................................................................................ 87 4.1 Basics of Banking........................................................................................................... 87 Relationship - Bank and Customer ......................................................................... 87 Products and Services ............................................................................................. 88
4.1.1 4.1.2 4.2
Savings Bank Account ................................................................................................... 88 Opening an Account ............................................................................................... 89 Nominee .................................................................................................................. 89 Things to Consider While Opening a Savings Account ......................................... 89 General Document Required (KYC Norms)........................................................... 89 Closing of Account ................................................................................................. 89 Account Transfer .................................................................................................... 90
4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.2.6 4.3 4.4
Cheques .......................................................................................................................... 90 Transactions ................................................................................................................... 90 Deposits................................................................................................................... 90 Withdrawals ............................................................................................................ 90
4.4.1 4.4.2 4.5
ATM Application ........................................................................................................... 91
4.5.1 4.5.2 4.5.3 4.5.4 4.6
Features ................................................................................................................... 91 Construction ............................................................................................................ 91 Advantages .............................................................................................................. 92 Reliability and Security measures ........................................................................... 93
Online banking (E-banking or Internet banking) ........................................................... 93 Advantages of Online Banking ............................................................................... 93 Security features...................................................................................................... 94 Types of Internet Banking Products (Services) ...................................................... 94
4.6.1 4.6.2 4.6.3 4.7
Biometric Devices and its scope in Applications ........................................................... 95 Types of Applications (Biometric devices) ............................................................ 95 Need (Importance) for Biometrics .......................................................................... 96 Usage Methodology ................................................................................................ 96 Advantages .............................................................................................................. 97
4.7.1 4.7.2 4.7.3 4.7.4 4.8 5
Exercise .......................................................................................................................... 97
ADVANCED BUSINESS SYSTEMS ................................................................................. 99 5.1 Enterprise Resource Planning (ERP) ............................................................................. 99 Scope of ERP .......................................................................................................... 99 ERP Evaluation ..................................................................................................... 100 Package ERP Solution Vs Custom Development ERP Solution .......................... 100 Modules of ERP .................................................................................................... 101 Advantages of ERP ............................................................................................... 102
5.1.1 5.1.2 5.1.3 5.1.4 5.1.5 5.2
Supply Chain Management (SCM) .............................................................................. 103 Advantages of SCM .............................................................................................. 104
5.2.1 5.3
Customer Relationship Management (CRM) ............................................................... 104 Need (Scope) of CRM .......................................................................................... 105 CRM Process and its Importance .......................................................................... 105 CRM Benefits ....................................................................................................... 105
5.3.1 5.3.2 5.3.3 5.4
Call Centre.................................................................................................................... 106 Call Centre Features .............................................................................................. 106 Call Centre Advantages ........................................................................................ 106 Scope in Customer Support .................................................................................. 107
5.4.1 5.4.2 5.4.3
5.5
Business Process Outsourcing (BPO) .......................................................................... 107 BPO Advantages ................................................................................................... 107
5.5.1 5.6
Knowledge Process Outsourcing (KPO) ...................................................................... 108 Areas of operation ................................................................................................. 108
5.6.1 5.7
International Business Management ............................................................................ 108 Evolution of International Business ...................................................................... 109 International Trade to International Marketing..................................................... 109 International Marketing to International Business ................................................ 109 Nature of International Business ........................................................................... 109 Factors affecting International Business ............................................................... 110 Market Potential Opportunities ............................................................................. 110 Competitive Advantage ........................................................................................ 111
5.7.1 5.7.2 5.7.3 5.7.4 5.7.5 5.7.6 5.7.7 5.8
Quality .......................................................................................................................... 112 Total Quality Management (TQM) ....................................................................... 112 Principles of TQM ................................................................................................ 112 TQM Advantages .................................................................................................. 113
5.8.1 5.8.2 5.8.3 5.9
Six Sigma ..................................................................................................................... 113 DMAIC ................................................................................................................. 114 DMADV ............................................................................................................... 114 Roles in Implementation ....................................................................................... 114 Features of Six Sigma ........................................................................................... 115 Advantages of Six Sigma ...................................................................................... 115 Exercise .................................................................................................................... 115
5.9.1 5.9.2 5.9.3 5.9.4 5.9.5 5.10
1
SALES AND DISTRIBUTION MANAGEMENT SYSTEM
Objective: Sale and distribution form an important part of every industry. The objective of this chapter is to understand the different aspects of sale and distribution process like sales budgeting, sales forecasting, segmentation, order processing, sales analysis, sales management and channels of distribution which would provide the building blocks of building an effective Sales and Distribution Management System.
1.1 Common Definitions and Vocabulary
Let us first understand the common definitions and terminologies used in the world of sales and distribution management:
? ? ? ? ? ? ? ? ? ? ? Company: Any entity engaging in business, such as a proprietorship, partnership or corporation. Product: The end result of the manufacturing process, to be offered to the marketplace to satisfy a need or want. Market: A public place where buyers and sellers make transactions, directly or via intermediaries. Supplier/Vendor: A company that supplies parts or services to another company. Customer: A person, company or other entity which buys goods and services produced by another person, company or other entity. Raw Material: Unfinished goods consumed by a manufacturer in providing finished goods. Inventory: A company's merchandise, raw materials and finished and unfinished products that have not yet been sold. Enterprise Resource Planning (ERP) system: Integrated computer based system used to manage internal and external resources. Pricelist: List indicating rates payable for different goods. Either on sheet of paper, online, booklet etc. Catalogue: Book/e-Book containing description of goods for sale along with price, features and technical specifications. Price Current: Price current is the price for which goods usually sell in the market. A printed newspaper containing a list of such prices is also called a price current. Generally, a statement or list of the prevailing prices of merchandise is published at regular intervals. Firm Order: An order to a broker to buy or sell a security, where the order is not dependent on later confirmation by the client. Rather, the client makes the order and the broker fills it.
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Consumer Product: Merchandise or other item of common or daily use, ordinarily bought by individuals or households for private consumption. Expenses incurred: In terms of distribution mode, it can be elaborated as the expense paid against storing the goods, packing, shipping, taxes, freight etc. Sale: It is an activity involved in the selling of products or services in return for money or other compensation. It is an act of completion of a commercial activity.
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Distribution: It is the process of making a product or service available for use or consumption by a consumer or business user, using direct means, or using indirect means with intermediaries. Each of the elements in the distribution chain will have their own specific needs, which the producer must take into account, along with those of the all-important end-user.
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Channels: They are sets of independent organisations (called intermediaries) involved in making the product available for consumption like distributors, retailers, etc.
1.2 Sales Budgeting
A sales budget is a detailed schedule showing the expected sales for the budget period; typically, it is expressed in both revenue and units of production. It is the starting point in preparing the master budget. All other items in the master budget including production, purchase, inventories and expenses, depend on it in some way. The sales budget is constructed by multiplying the budgeted sales in units by the selling price. Importance of Sales Budget: It helps you to answer questions like: 1. How much can you realistically sell next year? 2. How much will you charge for your goods or services? 3. How much will it cost to produce your product? 4. How much are your operating expenses? How to control expenses? 5. Do you need to hire employees? If so, how many and how much will you pay? 6. Improve distribution channels if possible. 7. Improve overall sales and marketing strategies.
Sales forecasting: Prediction of the future sales of a particular product over a specific period of time based on past performance of the product, inflation rates, unemployment, consumer spending patterns, market trends and interest rates. In the preparation of a comprehensive marketing plan, sales forecasts help the marketer develop a marketing budget, allocate marketing resources and monitor the competition and the product environment. Thus the budget sets the minimum requirements whereas a forecast is usually an
expectation of what is likely to happen.
Companies that implement accurate sales forecasting processes realize important benefits such as: 1. 2. 3. 4. 5. 6. Enhanced cash flow Knowing when and how much to buy In-depth knowledge of customers and the products they order The ability to plan for production and capacity The ability to identify the pattern or trend of sales Determine the value of a business above the value of its current assets
7. Ability to determine the expected return on investment The combination of these benefits may result in: ? ? ? ? Increased revenue Increased customer retention Decreased costs Increased efficiency
Segmentation is important process as part of defining the sales budget. The different forms of segmentation are:
1.2.1 Market Segmentation
Market Segmentation is defined as the process of splitting customers or potential customers, in a market into different groups or segments, within which the customers share a similar level of interest in the same or comparable sets of needs satisfied by a distinct marketing proposition. (Apr 12)
It is also explained as a marketing technique that targets a group of customers with specific characteristics, i.e. a particular group that has its own distinct customer profile and buyer characteristics so that for marketing purposes, it can be targeted separately from other segments of the market.
1.2.1.1 Benefits of Market Segmentation
(Oct 11, Apr 12) 1. 2. 3. 4. 5. 6. 7. Helps in better understanding of the customers‘ needs and wants Better targeting and position of the product Encourages two-way communication among the potential buyer and the organization Maintaining effective relationship with the customers Retaining the existing customers and attracting new ones Improving service delivery standards Reducing cost / expenses on various marketing activities and increasing market share; resulting in higher profits
1.2.1.2 Conditions for effective Market Segmentation
? ? ? ? ? Measurable: It should be possible to determine the values of the variable used for the segmentation. Relevant: It should justify the expected profits and the growth potential. Accessible: The target customers must be reachable and servable for the organization. Distinguishable: The target audiences must be diverse and able to show different reactions to different marketing mix. Feasible: The firm must have an ability to draw an effective marketing program for its customers.
1.2.2 Customer Segmentation
Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits and so on. Using segmentation allows companies to target groups effectively and allocate marketing resources to best effect. With Consumer Segmentation, the market is divided based on: 1. Geography 2. Demography 3. Psychological 4. Buying behaviour
1.2.2.1 Geographic Segmentation Geographic Segmentation divides markets into different geographical units like: 1. Regional Population Distribution: Segmented on the basis of region 2. Urban, Suburban and Rural Distribution: Segmented on the basis of city size or population concentration 3. Size of Metropolitan Area: Segmented on size of population drawn along country lines and may cross state borders. Further classified as: a. Metropolitan Statistical Area(MSA): Population of 50,000 to 1,00,000 b. Primary Metropolitan Statistical Area(PMSA): Large MSA population at least 10,000,00 c. Consolidated Metropolitan Statistical Area (CMSA): Giant urban centre consisting of two or more adjacent PMSA‘s 1.2.2.2 Demographic Segmentation
Demographic Segmentation divides the population based on following variables:
1. 2. 3. 4. 5. 6. 7. 8. Age (e.g.: Baby Foods) Gender (e.g.: Lipstick for females) Family size (e.g.: Big size car) Income (e.g.: Credit Cards) Occupation (e.g.: Medical/Surgical Instruments) Education (e.g.: Pens/Pencils/Dissection boxes to students) Ethnicity/religion (e.g.: God idols and frames) Nationality (e.g.: Amul Taste of India)
1.2.2.3 Psychographic (Psychological) Segmentation Psychographic Segmentation divides market based upon: 1. Activities (e.g. dividing based on leisure activities, driving preferences, eating out habits, etc.)
2. Opinion(e.g. growth of demand for organic foods or products that are (or are ?perceived? to be) environmentally friendly) 3. Interests (e.g. musical instruments, sports goods etc.) 1.2.2.4 Behavioral Segmentation Behavioural Segmentation divides the markets based on customer buying behaviour: 1. Benefits (e.g. Toothpaste, for example, is not only bought to maintain healthy teeth and gums, but also because of its taste and in order to help combat bad breath) 2. Usage (e.g. use of cell phones for different functions) 3. Brand Loyalty (e.g. customers buy the same hand wash for years) 4. Occasional/Festival (e.g. Umbrellas, firecrackers etc.)
1.2.3 Product Segmentation Product Segmentation can be classified into: 1. Consumer product 2. Business product Consumer product is further classified into:
a. Convenience Goods (Soap, Toothpaste, Cooking gas): Consumer is already aware of it. b. Shopping Goods (Furniture, Automobiles): Consumer tends to look before buying. c. Speciality Goods (Electronic Appliances/Health Products – Exercise Machines): Consumer generally buys preferred brands, is ready to wait and sacrifice. d. Unsought Goods (Cell phone, PDA): New in the market and consumer is not aware or is aware but not sure.
Business product is further classified into: a. b. c. d. e. Raw materials: Goods that become part of another tangible product Major equipment: Like CNC machines Accessory equipment: Like Cash counting machines in shops Component parts: Like Tyres in automobile industry Process materials: Classification of goods bought by organizations for incorporation into a product; the process materials cannot be recognized in the finished product f. Operating Supplies: Fabricating Oil, Pencils g. Service: Like housekeeping services
1.3 Sales Flow
Following are the steps involved in a typical sales flow: ENQUIRY
QUOTATION
ORDER
DELIVERY & INVOICE And
SALES ANALYSIS
Figure 1: Steps in a Sales Flow
1. 2. 3. 4. 5. 6.
Customer Enquiry: Seeking information about the availability of certain goods Preparation of Quotation: Answer to the enquiry Placing an Order: Asking for the goods with exact specification Order processing: Delivering the goods and raising an invoice Pending Orders: The orders which cannot be completed Sales analysis: For improving the process of sales
We will study the above steps in detail.
1.4 Customer Enquiry and Preparation of Quotation
1.4.1 Customer Enquiry
Customer Enquiry is the first step in commercial transaction. Prospective buyers have a choice on what to buy, whom to buy from and what price to buy at. It is defined as the process of seeking information about the availability of certain goods and the terms at which they are offered for sale. ? Enquiry letter must consist of following salient features: 1. Must specify the exact type of goods required to buy (size, style, shape, colour, quality, brand, etc.)
2. 3. 4. 5. ?
Specify quantity for purchase Provide samples if available Catalogue if provided Clearly state the terms and conditions (discount, payment terms, etc.)
Types of enquiries: Enquiries can be created through: 1. Sellers website 2. Telephonic 3. Email 4. Direct walk-in Follow up: A sellers nominated customer care executive does the follow up of a buyer‘s enquiry. Number of times many a follow-ups are required, these are generally logged for the performance of the customer sales department, product demand and buyers interests. Closure: An enquiry is either to be handled, completed or cancelled as closed.
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Example of Customer Enquiry letter: Consider a scenario where ABC computers assembles and sell computers. REDsoft is a software company and they require buying 5 computers from ABC Computers. So they send in an enquiry form to ABC computers, clearly stating what exactly they are looking for in buying.
Figure 2: Format of an Enquiry Letter
Details in above Enquiry Letter: 1. Address of REDsoft: The location where goods (computers) will be delivered. If delivery address is different than the address on letter head, it must be specified 2. Ref: ENQ10090: This is for reference purposes for REDsoft and ABC when they start discussion. E.g. With reference to your enquiry# ENQ10090. This can be a unique number (primary key) in REDsoft‘s EMS - Enquiry management system 3. No of computers stated – 5 4. Details of the configuration 5. Estimated time for 30 days from order Thus, REDsoft has clearly adhered to the rules of an ideal enquiry process. Now ABC computers is interested to sell the computers to REDsoft, so it will answer to this enquiry.
1.4.2 Preparation of Quotation
The answer to the enquiry is called as a quotation. It is the second step in a commercial transaction. The seller (in our example, ABC Computers) has to give immediate attention to the prospective buyers, by quoting the terms of sale on goods covered in the enquiry letter (form). (Apr 11, Oct 11) Quotation must consist of following salient features: (Apr 12) 1. Thank the enquirer 2. Specify price of goods asked in the enquiry 3. State terms of sale 4. Payment terms 5. Specify delivery schedule: Time, place and delivery locations 6. Provide samples/ catalogues if possible Example of Quotation:
Figure 3: Format of a quotation
Details in above quotation: 1. Address of ABC Computers- From where goods(computers) will be dispatched 2. Address of REDsoft Corp- where goods(computers) will be delivered 3. QTn# 190078 - A unique (primary key) assigned as the serial number to the quotation for all further references to ENQ#10090. This is mapped in the EMS software 4. Description of the goods to be dispatched 5. Payment terms 6. Delivery terms 7. Other terms and conditions like Tax/VAT etc.
1.5 Customer Order Processing
1.5.1 Purchase Order (PO)
A purchase order is a commercial document issued by a buyer to a seller, indicating types, quantities and agreed prices for products or services the seller will provide to the buyer. The buyer uses it to request products and services from suppliers instead of calling them to request their purchase.
In our example, once REDsoft is happy with what ABC offers, it sends ABC Computers a Purchase Order. Example of PO form: (Oct 11)
Figure 4: Purchase Order form
Thus on the PO form, you describe: 1. What it is that you require (product details) 2. When you want it and (timelines for the order to materialize) 3. Where do you want it (shipping name and address) 4. How much you expect to pay for it By using this Purchase Order template, you can ensure you receive exactly what you have ordered, at the right time and the right price.
1.5.2 Sales Order (SO) A sales order is an internal document of the company, meaning it is generated by the company itself. A sales order should record the customer's purchase order which is an external document. The customer's PO is the originating document which triggers the creation of the sales order. A sales order, being an internal document, can therefore contain many customer purchase orders under it. In a manufacturing environment, a sales order can be converted into a work order to show that work is about to begin to manufacture, build or engineer the products the customer wants. The SO from ABC Computers is raised against PO raised by REDsoft.
Below is a sample screen shot of a SO:
Figure 5: Sales Order form
Thus on the SO form, you describe: 1. What it is that you will provide (product item details with price and quantity) 2. When will you ship it(Customer Required Date (CRD) or Delivery Date) 3. Where will you ship it (shipping name and address)
4. Expected money for the sale 5. Reference to the PO, Quotation, etc. 6. Terms of payment, delivery, taxation etc. Once goods are ready for dispatch, a Delivery Note (DN) is sent to the warehouse along with description of scheduled items to ship out. The warehouse then takes care of packing the goods and dispatching them by the terms of delivery attached in the Delivery note/Sales Order. An Invoice (Bill) will be sent along with the shipment.
1.5.3 Invoice (Bill)
An Invoice (Bill) is a commercial document issued by a seller to the buyer, indicating the products, quantities and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller, according to the payment terms. The buyer has a maximum amount of days to pay these goods and are sometimes offered a discount if paid before.
Figure 6: Invoice
Thus on the Invoice, you describe: 1. Invoice number and date 2. Customer details (name, address, etc.) 3. Delivery details (number, date, shipping/unloading point, transporter, etc.) 4. Reference Sales Order/Purchase Order 5. Product details 6. Cost and Taxes 7. Payment terms, other terms and conditions
1.5.4 Steps in Order Processing (Apr 12) To summarize, following will be the steps as part of customer order processing:
1. As a first step, a potential buyer raises a customer enquiry to eligible sellers. This can also be called as process of procuring by the buyer. Procuring can be done by a voluntary offer, advertisement or through selling agents. 2. The interested sellers provide a quotation to the buyer. 3. The buyer compares the different quotation on different parameters like cost, quality, terms and conditions, etc. and chooses a particular seller 4. The buyer then sends a Purchase Order (PO) to the seller 5. The seller raises a Sales Order (SO) in response to the PO and converts purchase order information to an actual order. Before that, he checks if it is possible to execute the order according to terms and conditions and checking other aspects (like stock, quality, etc.) 6. The seller also generates customer invoices and ships the goods to the buyer. The seller also sends the buyer the receipts or documents that entitle him to claim the goods.
1.6 Pending Customer Orders
Pending orders are orders that are normally pending with the seller and are not completely/partially delivered to the buyers. The reasons could be: 1. Lack of manpower to execute orders in hand 2. Lack of skilfully doing a job, time is wasted 3. Shortage of inventory 4. Too many orders in hand 5. Orders are complete but distribution channel is slow 6. Customer credit issues: Payment problems from customers/buyers 7. Sudden price raise or change in taxation rules
8. Priority changes for certain products, slowing other products completion 9. Other considerable factors like natural disasters - fire, earthquake etc. at manufacturing units
1.6.1 Procedure to handle Pending Orders
1. Such situations tend to disappoint customers; this has to be handled with proper customer relations and communications. 2. Explain the reasons for delay, so the buyer/customer is aware of the delayed delivery schedule. 3. Expedite order creation: As a next process, a proper plan to be implemented to continue efficient delivery schedule and avoid orders to wait. 4. Age wise analysis for corrective action: A report according to time will scrutinize the situation of the orders age wise, to determine which orders are required to be pushed at priority. 5. Lack of product/part availability: All inventories to be warehoused/stocked properly to avoid out of status, this can be attained using the concept of EOQ: Economic Order Quantity. 6. Respect Customer Required Date (CRD) and improve process to maintain: The customer frames a CRD because it is planned, thus the seller should respect and do his best to deliver the same on the CRD mentioned.
1.7 Sales Analysis
It is determination of the extent to which a sales force has met its sales objectives within the specified timeframe. Through sales analysis, a business will become familiar with emerging trends in the marketplace. When sales fluctuate, it implies new trends manifesting that a company needs to master to keep sales on par with those of the competition. A company needs to know which products competitors are selling more of to draw its own strategy. (Apr 11, Apr 12) Sale analysis can be done: 1. By territory: Geographical area and quotas. E.g. Northern/Western/Eastern/Southern 2. Sales person: Problems faced and ways to work out individual problems faced in selling the product 3. Product line: In case of multi products, the company analysis its force on sale depending how particular product performs in the market. E.g. Tata Motors: Cars/SUV/Trucks/Insurance/Salt etc. 4. Customer: Compares loyal customers with shifting customers
1.7.1 Importance of Sales Analysis
It will be help the companies to find following critical information: 1. Cost of goods revenue of sale / Profit per revenue 2. Cost per segment / Cost per territory 3. Cost per sales person / Cost per channel member 4. Average cost/order
Sample Sales Analysis: (Oct 11) Western Region Sales (Q4 Oct to NUM2011) ABC Computers Sales Area Pune Mumbai Goa Total Planned 10000 25000 5000 40000 Actual 12500 22000 1400 35900 P/L 2500 -3000 -3600 -4100 %Quota 125 % 88 % 28 % 89.75 %
Figure 7: Region/territory sales of ABC Computers
1.7.2 Computerized Sales Analysis:
Using simulation provided with a database of product related data to analyse the sales is called Computerized Sales Analysis and it uses: 1. Basic statistical measures of average (mean, median) 2. Basic statistical measures of spread (variance and standard deviation) 3. Histogram 4. Correlation Analysis 5. Pareto Analysis Computerized Sales Analysis can be used to perform the following: 1. Organise and analyse data 2. Define reports 3. Modify data 4. Select groups of records 5. Summarise data 6. Compare data
1.8 Sales Management
Sales Management is the art of meeting and exceeding the sales goals of an organization through effective planning, controlling, budgeting and leadership. It is an important business function as net sales through the sale of products and services and resulting profit drive most commercial business. These are also typically the goals and performance indicators of Sales Management. (Oct 11) Sales Management can involve any of the following activities:
1. Formulation of sales strategy through development of account management policies, sales force compensation policies, sales revenue forecasts and sales plan. 2. Implementation of sales strategy through selecting, training, motivating and supporting the sales force, setting sales revenue targets. 3. Sales force management through development and implementation of sales performance, monitoring and evaluation methods and analysis of associated behavioural patterns and costs. Thus, Sales Management helps the organization to achieve the sales targets efficiently.
1.8.1 Functions of Sales Management
(Oct 11)
The following are important functions performed by Sales Management:
1. Size of Sales Force: Determine how much resource in terms of size of sales force is required to sell the product. 2. Determine Sales Organization: Determine the number of sales offices required and their organization to function and cater customers. 3. Determine Sales Regions (Territory): Combine sales offices under various regions to monitor sales volume and profits. 4. Recruitments/Trainees: To recruit sales people as and when required, train them if necessary with company made sales policy and regulations. 5. Task Allocation and Target Setting: Assign sales tasks to region/office/individually and target volume and profit for calculating sales budgets and management related reports. 6. Appraisals/Compensations/Commissions: Perform appraisals and calculate compensations and commissions, which help, sell products faster due to increase in team morale. 7. Feedback mechanism: Interact with customers and generate an improvement in sales functions. 8. Distribution channel management: Manage distribution channels so that the product reaches well in time, at correct place and price.
1.8.2 Objectives of Sales Management The following are objectives of the Sales Management from company‘s viewpoint:
1. 2. 3. 4. Achieving target goals by acquiring sufficient sales volume. Providing contribution to profits Help continuous growth of the product life cycle Reduce expenses and raise gross margins to convert loss into profit
1.8.3 Principles of Sales Management
Following are the principles to be followed by sales managers to efficiently perform their role:
1. Lead by example: A successful sales manager has higher standards and stricter policies than the company requires. 2. Instil discipline in your organization: People must be told the discipline measures to be followed. 3. Let them know what is expected: Sales managers must let people know exactly what is required of them. 4. Manage your people individually: While training, giving constructive criticism, taking disciplinary action it must be done one to one with people 5. Be goal oriented: People should know that hitting the goals and targets is the primary purpose of being in business. 6. Treat others, as you want to be treated: People must be treated with due respect. 7. Catch them doing something right: Providing positive feedback on a regular basis makes it easier to deliver negative feedback when necessary. 8. Manage on objective information: The decisions must be based on information and not bias. 9. Get on the floor: Sales managers should always ready to be on the floor if the situation demands so 10. Be direct and to the point: The sales managers must be direct, clear and concise in their conversations. 11. Do not settle for the status quo: Sales managers need to keep on improving the different processes and targets. 12. Be firm but fair: Everyone must be treated with same process for a given action.
1.8.4 Problems in Sales Management It is important to understand the problems faced by Sales Management. For better understanding let us take an example where a company CREATIVE EDUCATIONAL PRODUCTS (CEP) wants to launch a new pen for students in market called Wonder Pen and decides to sell it for Rs.5. Let us see what are the different problems faced by the company:
1. Introduction to a new Product: This happens when a new product comes in the market and the customer/buyer is reluctant to buy it. At this time sales management decides to promote the product through different advertising channels like: ? ? ? ? ? Television Radio Cinemas Newspapers Banners and hoardings in public places
? Internet Buyers are thus introduced to the product brands. Sometimes samples are distributed free of charge as samples for the buyer to use and feel comfortable with the use of the product. CEP will market their pen in stationary stores nearby to colleges, schools and institutes using hoardings. In addition, it could publish advertisement in newspapers.
2. Demand Creation: As the product is now known in the market, the manufacturer/seller identifies who are the potential buyers and creates a need of the product making it a demand. The problem which they may face is customers sticking to existing products and non-accepting of new product. Thus, after students start using Wonder Pen, they may realise that they are getting good worth for Rs.5, but it is important to convince them to use it for first time. 3. Market Research: For the manufacturer/seller to gain profitability, it is necessary for him to know how good the product is doing in the market. He thus carries out a market research depending on the following factors: ? ? ? Volume of sale region wise (What is quantity of Wonder Pen sold in different areas?) Customer reaction toward the usage (Do students like using Wonder Pen?) Efficiency of products distribution on time and correct price (Is the Wonder Pen available on time and correct price?) ? Dealer behaviour towards the products sale (What is shopkeepers view about Wonder Pen?) 4. Sales Forecast and Product Development: Depending on the market research, the seller can study and find out how well the product is doing in the market. It will help to understand whether any modifications are required to boost up sales. It also helps him to know in which region the product responded well, so he can focus on more distribution in that particular area. Thus if Wonder Pen manufacturer find that pens are getting sold higher in particular area, they will double the shipments to that area. If Wonder Pen overall is a success, then CEP can think of manufacturing a new series of gel pens called Wonder Gel Pen and sell for Rs.5.00. 5. Managing distribution channels: This is major problem for Sales Management to efficiently manage the distribution channels to keep the overall costs low. Thus, if pens can be reached at correct places in time and at low cost shipping a box of 500 pens and there are many boxes to be shipped to many stores, CEP has to think of a perfect route of distribution, so that the vehicle will move straight in one direction distributing the boxes efficiently, without making round trips.
1.9 Distribution Management System
1.9.1 Marketing (Distribution) Channel
Marketing Channel is a set of practices or activities necessary to transfer the ownership and move goods and from the point of production to the point of consumption and it consists of all the institutions in the marketing process. The different roles played by marketing channels include: 1. Linking producers to buyers 2. Performing sales, advertising and promotion 3. Influencing the firm's pricing and product strategy 4. Customizing profits, offering credit, etc.
Activities involved in the marketing channel are wide and varied and include 1. Ordering 2. Handling and shipping 3. Storage 4. Display 5. Promotion 6. Selling 7. Information feedback
1.9.2 Different intermediary Channels
There are different intermediary channels between the producer and the consumer which add unique value at each level. Let us look at their value additions: 1. Resellers: These organizations, also known within some industries as intermediaries, distributors or dealers, generally purchase or take ownership of products from the marketing company with the intention of selling to others. These organizations can be classified into several sub-categories including: ? ? ? Retailers: Organizations that sell products directly to final consumers. Wholesalers: Organizations that purchase products from suppliers and in turn sell these to other resellers, such as retailers or other wholesalers.
Industrial Distributors: Firms that work mainly in the business-to-business market selling products obtained from industrial suppliers. 2. Specialty Service Firms: These are organizations that provide additional services to help with the exchange of products but generally do not purchase the product (i.e., do not take ownership of the product). These organizations can be classified into several sub-categories including: ? ? ? Agents and Brokers: Organizations that mainly work to bring suppliers and buyers together in exchange for a fee. Distribution Service Firms: Offer services aiding in the movement of products such as assistance with transportation, storage and order processing. Others: This category includes firms that provide additional services to aid in the distribution process such as insurance companies and firms offering transportation routing assistance or software companies providing distribution management software.
1.9.3 Different forms of Channels Distribution channels are primarily of two types: 1. Direct Marketing Channel or Zero level 2. Indirect Marketing Channel
Let us see the examples of each: ? 0 Level : Also called Direct Marketing Channel Producer ??????????????????????Consumer E.g. Eureka Forbes
Indirect Marketing Channels can be further classified depending on the number of intermediaries: ? 1 Level Producer ???????Distributor / Retailer???????Consumer E.g. Most commercial products, perishable items - milk, bakery etc. 2 Level Producer ????Wholesaler???Retailer????Consumer E.g. Distribution of drugs, FMCG, etc. 3 Level Producer ??Distributor??Wholesaler??Retailer??Consumer E.g. Convenience products, appliances etc. 4 Level Producer?Agent?Distributor?Wholesaler?Retailer?Consumer E.g. Consumer durable products, etc.
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1.9.4 Importance (Need) of Distribution Channels It is impossible for a company to handle all aspects of distribution including shipping, reselling, promotion, etc. by themselves and they would definitely need the services of other channel partners. The importance of the distribution channels is because of the numerous benefits they add to the consumer experience of buying a product: 1. The different channel partners are specialist in their own areas and they help to bring down the costs along with providing best of service to the customers. 2. The channel members perform their job more rapidly resulting in faster product delivery. It also helps that the channel members like shipping companies can collect goods from different companies and provides it to the target destinations. 3. By handing over the responsibility of some of functions to channel intermediaries, the manufacturers are themselves able to concentrate on their core business. 4. The channel members like retailers help the customers to get all the products they want conveniently at a single location. 5. Resellers can help you to generate demand and create sales by marketing and educating the customers about your product 6. Some channel partner offer financial support to the customers by providing purchase on credit, easy instalment plans, etc.
1.9.5 Challenges of Distribution Channels 1. Sometimes the cost of different channel partners may start spiraling upwards due to various issues. 2. The manufacturer has no control on the communication about his products and has to depend on how the retailers project the products. 3. The overall success of the product would not depend on just the quality of the product but also how fast the product is provided, the buying experience of the customer, etc. which in turn is dependent on the efficiency of the channel intermediaries.
1.10 Components of designing Sales Management System
Consider a simple scenario where ABC computers is providing multiple quotations to its multiple buyers about the different computers it has to offer. ABC computers can raise multiple bills or raise multiple sales orders. Buyers can themselves place multiple sales orders.
Figure 8: Entity Relationship Diagram
The different entities of a Sales Management System supporting the above ER diagram would be: Customer Data Element Customer_id Name Gender Date_of_birth E-mail Data Type Autonumber Text Text Date/Time Text Size 10 50 1 40 Description Primary Key Customer name Customer gender Customer date of birth Customer e-mail Validation No duplicate M/F dd/mm/yyyy e-mail format
Passport no. Password Phone Affiliate Data Element Affiliate_id Name Phone E-mail Password Service
Text Text Text
10 20 15
Customer/Passport Customer Password Customer phone no.
Number
Data Type Autonumber Text Text Text Text Text
Size 10 50 15 40 20 30
Description Primary Key Affiliate name Affiliate phone no. Affiliate e-mail Affiliate Password Affiliate service
Validation No duplicate Number e-mail format -
company‘s -
Order Data Element Order_id Date Customer_id Affiliate_id Payment_id Schedule Data Element Schedule_id Date Available Data Type Autonumber Date/Time Text Size 10 30 Description Primary Key Available date Affiliate company available on a date Validation No duplicate dd/mm/yyyy Data Type Autonumber Date/Time Integer Integer Integer Size 10 10 10 10 Description Primary Key Order‘s date Customer‘s id Affiliate id Order‘s payment id Validation No duplicate dd/mm/yyyy Valid id Valid id Valid id
Payment Data Element Payment_id Type Status Due date Amount Customer_id Goods Data Element Data Type Size Description Validation Data Type Autonumber Text Text Date/time Number Integer Size 10 10 50 10 10 Description Primary Key Payment type Payment Status Payment due date Amount of payment Customer‘s id Validation No duplicate dd/mm/yyyy Numeric Valid id
Goods_id Goods_type Goods_name Goods_cost
Autonumber Text Text Number
10 10 50 10
Primary Key Goods type Goods name Goods cost
No duplicate -
Bills Data Element Bill_no Bill_date Customer_id Item name Qty Rate Amount Data Type Autonumber Date/Time Integer Text Integer Number Number Size 10 10 50 10 10 10 Description Primary Key Bill date Customer‘s id Item name Qty Rate Amount Validation No duplicate dd/mm/yyyy Valid id -
Quotation Data Element Quotation_no Quote_date Customer_id Item name Qty Rate Amount Data Type Autonumber Date/Time Integer Text Integer Number Number Size 10 10 50 10 10 10 Description Primary Key Quotation date Customer‘s id Item name Qty Rate Amount Validation No duplicate dd/mm/yyyy Valid id -
1.11 Case Study on Sales and Distribution Management System
Problem Statement:
?Glaxo Pvt. Ltd.? is an antibiotic manufacturing company located at Nashik that deals with production
and sale of medicines. The sales and order processing department of the company deals with the sale of medicines to different medical shops within Pune, as well as to medical shops outside Pune. The order processing for medical shops outside the city is done through dealers. Each city has three dealers, who accept orders from the medical shops within their area and forward it to the sales department of Glaxo. The medicines are sent to the dealer site and from there it is distributed to the corresponding medical shops. It has been found that, there is a lot of time lapse, between the placing of orders and obtaining the medicines, for the medical shops outside Pune. Due to this, most of the medicines remain out of stock for a longer time, in these shops. Suggest a suitable business process, to model the above situation, so that
order processing for medical shops outside Pune can be faster, even though it has to go through a dealer (as per the sale rules of Glaxo). Specify the different input documents (detailed documents) that are necessary for your specified business process and also suggest any supporting reports that can be obtained from your specified business process. (Apr 11) Approach to solve the Case Study: The Case Study deals with improvement of the Sales and Distribution Management System for a company. 1. First collect the direct stated facts: ? ?Glaxo Pvt. Ltd.?sells its products through its dealers ? There is lot of time lapse, between the placing of orders and obtaining the medicines ? The effect is medicines remain out of stock and the overall sale is reduced 2. Then collect the unstated facts: ? The new order processing system needs to be put in place ? Also a system has to be put in place to keep a track of all the dealers and their stocks/bills receivable needs to be improved 3. Specify the input documents that can be used to improve the process. Draw the document formats wherever possible: ? Glaxomust provide a standard Quotation to the dealers specifying the exact terms and conditions (provide standard Quotation format) ? Each of dealers should use a standard Purchase Order form to provide the order (provide standard Purchase Order format) ? Glaxomust use the Purchase Order form to convert into a Sales order as well as generate an Invoice (provide standard Sales Order and Invoice format) ? Dealers must maintain inventory and Glaxo must provide ideal inventory levels when the dealers must raise a purchase order 4. List output reports which can be generated from the Sales and Distribution Management System like: ? List of orders received with details ? Total quantity of different products required on periodic basis ? Status of delivery and payment
1.12 Exercise
Answer in brief (1-2 lines): 1. What is market segmentation? (Apr 12)(Refer 1.2.1) 2. Define Product. (Refer 1.1) 3. What are the Consumer Products? (Refer 1.1) 4. Define Enquiry. (Refer 1.4.1) 1 mark
5. 6. 7. 8. 9. 10. 11. 12. 14. 15. 16. 17.
Define Quotation. (Oct 11) (Refer 1.4.2) Define Pricelist. (Refer 1.1) Define Catalogue. (Refer 1.1) Explain Firm Order. (Refer 1.1) Define Price Current. (Refer1.1) Explain Expense incurred. (Refer 1.1) Define Order. (Refer 1.1 ) What is sales analysis?(Apr 12) (Refer 1.7) Give benefits of market segments. (Oct 11) (Refer 1.2.1.1) What is the content of quotation? (Apr 11) (Refer 1.4.2) What is the objective of sales analysis?(Apr 11) (Refer 1.7 & 1.7.1) Write the features of Quotation.(Apr 12) (Refer 1.4.2)
13. Explain Pending Customer orders. (Refer 1.6)
Write Short Notes: 3 marks 1. Geographical Segmentation (Refer 1.2.2.1) 2. Demographic Segmentation (Refer 1.2.2.2) 3. Psychological Segmentation (Refer 1.2.2.3) 4. Consumer Products (Refer 1.2.3) 5. Enquiry (Refer 1.4.1) 6. Order Placing (Refer 1.5) 7. Pending Customer Order (Refer 1.6) 8. Order Procurement (Refer 1.5) 9. Purchase Order (Refer 1.5.1) 10. Sales Order (Refer 1.5.2) 11. Invoice (Refer 1.5.3) 12. Give the report layout structure of ?purchase order?.(Oct 11) (Refer 1.5.1) 13. A company is having main office at Mumbai which controls the sale of their product in south, east, west and north zone. At the end of each financial year they collect the information of targeted sale and actual sale from each zone. Define a structure for the report (textual or graphical) which represents the sales analysis at four zones. (Oct 11) (Refer 1.7.1)
Answer the following in detail: 1. What is Sales Management? Explain its functions in detail.(Oct 11) (Refer 1.8 & 1.8.1) 2. What are the factors considered while formulating Sales Budget? (Refer 1.2) 3. Pending orders need to be attended promptly. Explain. (Refer 1.6 & 1.6.1) 4. Explain Sales Analysis. (Refer 1.7 & 1.7.1 & 1.7.2) 5. Explain the benefits of Market Segmentation? (Oct 11, Apr 12) (Refer 1.2.1) 6. Describe the classification of Consumer Segmentation? (Refer 1.2.2)
5 marks
7. What is the main function of Sales Management System? List any four key decision areas of sales management. (Refer 1.8.1) 8. What is market segment? State the factors, based on which market segmentation is done. (Refer 1.2.1) 9. What is a budget? What is sales budget? (Refer 1.2) 10. Explain the process of computerized sales analysis? (Refer 1.7.2) 11. What do you mean by Sales Forecasting? (Refer 1.2) 12. What is channel management? Explain with examples different types of channel. (Refer 1.9.1 & 1.9.2) 13. What do you mean by enquiry? Explain the functioning of the Enquiry Management System. What is reply to enquiry called? (Refer 1.3) 14. Define quotation. Write the features of quotation? What are the essential things to be specified while writing the quotation? (Refer 1.4.2) 15. Briefly explain the processing of customer order processing. (Apr 12) (Refer 1.5) 16. List the principles of Sales Management. (Refer 1.8.3)
2
HUMAN RESOURCE MANAGEMENT SYSTEM
Objective: Human resource is most important resource of every organization. The objective of this chapter is to understand the different aspects like functions of human resource manager, employee recruitment, training, appraisal, leave accounting and payroll which are effectively managed by a using Human Resource Management System.
2.1 Introduction
Human Resource Management is the organizational function that deals with issues related to people such as compensation, hiring, performance management, organization development, safety, wellness, benefits, employee motivation, communication, administration and training. Let us what an organization is, what are departments, reporting structures, employees and positions using an example.
Figure 9: Organization, Department and Sub-department
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Organization: It is a company, business, firm or association. In our example, it is ?ABC Car Manufacturers‘. Departments: To manage an organization in better manner, it is further sub divides into functional units, where people of specific skills work in the respective zones. This functional classification is called as department. E.g. A computer engineer would work in the IT department of ABC Car Manufacturers. Sub-departments: To manage a department, the department separates itself into still easier manageable level called Sub-departments. E.g. IT department simplifies its levels by dividing the department in 3 special skills (Software, Hardware, Network Support)
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2.1.1 Organizational Structure Chart The graphical representation of the organizations hierarchy with the departments, positions and reporting structure is called the Organization Structure Chart. For example, the chart for ABC Car Manufacturers will be as below:
Figure 10: Organization Structure Chart
2.1.2 Introduction to Human Resource Management Edwin Flippo defines HRM as ?planning, organizing, directing, controlling of procurement, development, compensation, integration, maintenance and separation of human resources to the end that individual, organizational and social objectives are achieved.? Features of HRM 1. HRM involves management functions like planning, organizing, directing and controlling. 2. It involves procurement, development, maintenance of human resource. 3. It helps to achieve individual, organizational and social objectives. 4. HRM is a very disciplinary subject. It includes the study of management psychology, communication, economics and sociology. 5. It involves team spirit and teamwork.
2.1.3 Evolution of HRM The evolution of HRM can be traced back to Kautilya Artha Shastra where he recommends that government must take active interest in public and private enterprise. He says that government must provide a proper procedure for regulating employee and employee relation. In the medieval times, there were examples of kings like Allaudin Khilji who regulated the market, charged fixed prices and provided fixed salaries to their people. This was done to fight inflation and provide a decent standard of living During the pre-independence period of 1920, the trade union emerged. Many authors who have given the history of HRM say that HRM started because of trade union and the First World War. The Royal commission in 1931 recommended the appointment of a labor welfare officer to look into the grievances of workers. The factory act of 1942 made it compulsory to appoint labor welfare officer if the factory had 500 or more than 500 workers. The international institute of personnel management and national institute of labor management were set up to look into problems faced by workers to provide solutions to them. The Second World War created awareness regarding workers‘ rights and 1940‘s to 1960‘s saw the introduction of new technology to help workers. The 1960‘s extended the scope of human resource beyond welfare. Now it was a combination of welfare, industrial relation and administration together and it was called personnel management.
With the second 5-year plan, heavy industries started and professional management became important. In the 1970‘s the focus was on efficiency of labor while in the 1980‘s the focus was on new technology, making it necessary for new rules and regulations. In the 1990‘s the emphasis was on human values and development of people and with liberalization and changing type of working people became more and more important there by leading to HRM which is an advancement of personnel management.
2.1.4 Scope (Functions) of HRM The scope of HRM refers to all the activities that come under the banner of HRM. These activities are as follows:
1. Human resources planning
Human resource planning or HRP refers to a process by which the company to identify the number of jobs vacant, whether the company has excess staff or shortage of staff and to deal with this excess or shortage.
2. Job analysis
Job analysis gives a detailed explanation about each job in the company. Based on this job analysis the company prepares advertisements.
3. Recruitment and Selection
Based on information collected from job analysis the company prepares advertisements and publishes them in the newspapers. This is recruitment. A number of applications are received after the advertisement is published, interviews are conducted and the right employee is selected.
4. Orientation and induction
Once the employees have been selected, an induction or orientation program is conducted. The employees are informed about the background of the company, explained about the organizational culture, values, work ethics and introduced to the other employees.
5. Training and Development
Every employee goes under training program that helps him to put up a better performance on the job. Training program is also conducted for existing staff that have a lot of experience. This is called refresher training. Training and development is one area where the company spends a huge amount.
6. Performance appraisal
Once the employee has put in around one year of service, performance appraisal is conducted that is the HR department checks the performance of the employee. Based on these appraisal future promotions, incentives, increments in salary are decided.
7. Compensation planning and remuneration
There are various rules regarding compensation and other benefits. It is the job of the HR department to look into remuneration and compensation planning.
8. Motivation, welfare, health and safety
Motivation becomes important to sustain the number of employees in the company. It is the job of the HR department to look into the different methods of motivation. Apart from this, certain health and safety regulations have to be followed for the benefits of the employees. The HR department also handles this.
9. Industrial relation
Another important area of HRM is maintaining co-ordinal relations with the union members. This will help the organization to prevent strikes lockouts and ensure smooth working in the company.
2.1.5
Challenges before the HR manager
1. 2. 3. 4. 5. 6. 7.
Retention of the employees Multicultural work force Retrenchment for employees Changes in demand of government Initiating the process of change Changing the method of working Changing the attitude of people
2.1.6 Significance (Need) of HRM HRM becomes significant for business organization due to the following reasons:
1. Objective HRM helps a company to achieve its objective from time to time by creating a positive attitude among workers reducing wastage and making maximum use of resources. 2. Facilitates professional growth
Due to proper HR policies, employees are trained well and this makes them ready for future promotions. Their talent can be utilized not only in the company in which they are currently working but also in other companies that the employees may join in the future.
3. Better relations between union and management
Healthy HRM practices can help the organization to maintain co-ordinal relationship with the unions. Union members start realizing that the company is also interested in the workers and will not go against them therefore chances of going on strike are greatly reduced.
4. Helps an individual to work in a team/group
Effective HR practices teach individuals teamwork and adjustment. The individuals are comfortable while working in team that improves the output of the team.
5. Identifies person for the future
Since employees are constantly trained, they are ready to meet the job requirements. The company is also able to identify potential employees who can be promoted in the future for the top-level jobs. Thus, one of the advantages of HRM is preparing people for the future.
6. Allocating the jobs to the right person
If proper recruitment and selection methods are followed, the company will be able to select the right people for the right job. When this happens, the number of people leaving the job will reduce, as the people will be satisfied with their job leading to decrease in labor turnover.
7. Improves the economy
Effective HR practices lead to higher profits and better performance by companies. Due to this, the company may get a chance to enter into new business or start new venture thus industrial development increases and the economy improves. 2.1.7 Human Resource Management Systems (HRMS) HRMS provide a link between human resource management and information technology. It allows enterprises to automate many aspects of human resource management, with the dual benefits of reducing the workload of the HR department as well as increasing the efficiency of the department by standardizing HR processes. HRMS convert human resources information into a digital format, allowing
that information to be added to the knowledge management systems of the enterprise. The result of this is that HR data can be integrated into the larger Enterprise Resource Planning (ERP) systems of the enterprise. Data related to the time usage of the workforce can enhance the decision making abilities of management, allowing the HR department to form an integral aspect of strategy formation for the enterprise as a whole.
2.2 Employee Database and Knowledge Management System
2.2.1 Employee A person who is hired to provide services to a company on a regular basis in exchange for compensation and who does not provide these services as part of an independent business. In short a person who works in an organization in return for compensation (money). 2.2.2 Employee Database Database means collection of number of records. Employee database is the master data maintained by the HR department of an organization. The database components comprise of the following information:
1. Employee personal Details a. Employee ID b. Name (First /Middle/ Last) c. Address (Temporary/Permanent/Contact Numbers/Emergency Contacts) d. Misc. Details: Gender / Age e. Qualifications/Experience History Details f. Dependents(Family data - Spouse/Parents/Children) 2. Employee Organizational Details a. Department b. Reporting c. Time data d. Work Schedule 3. Employee Accounts Data a. Wage Components- Reimbursements/Allowances/Perks b. Bank Details- Salary transfers and monetary transactions c. Tax Structure and other statutory benefits-DA/Gratuity/PF etc. 4. Employee Other data a. Appraisal b. Training c. Travel
2.2.2.1 Employee personal Details ? Employee ID: This is like the roll number. It is a unique key to identify the employee details. ? ? ? Employee Name: Is filled as First/Middle/Last name, sequence as defined by the HR department. Address: An address field is required in case of correspondence to the employee/relatives of the employee. Generally Temporary and Permanent both addresses are maintained. Contact Numbers: These are telephone/mobile numbers in case HR Department needs to contact the employee. In addition, HR maintains Emergency contact numbers, e.g. mobile number of close people to the employee, for contact in emergencies. ? Miscellaneous Details: Gender filled as in Male/Female: Required for taxation purpose, as Income tax slab differ respectively. To manage shifts, generally female employees could be excluded from Night shifts etc. Age is recorded to maintain seniority, calculate retirement age, provide benefits schemes like medical insurance etc. Qualifications and Experience summary: This is recorded for appraisal purpose. Qualifications help in choosing trainings to employees, fit in desired positions vacant in the organization. Experience helps in navigating the person to correct position in the hierarchy, e.g. a Computer Engineer with 5 years‘ experience will be taken to lead a team of five Computer graduate fresher entering the department. Dependents: This is filled for insurance or beneficiary purposes.
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2.2.2.2 Employee Organization Details ? Department/Reporting Structure: This is the maintained for the organizations reporting part. It shows exactly where the employee is what is the department he is working in, what is his position and whom does he report to. ? Time Data/Work Schedule: As a part of discipline and smooth working process, an employee is assigned with a time of reporting, i.e. his working schedule comprising of: a. Time In: At what time the employee reports to work in the office b. Break: Teatime, Lunch etc. c. Time Out: At what time the employee can leave office for home d. Day Schedule: Which days the employee can come for work and when is the weekly off Other than this, he is entitled for some leaves, in case of sickness, personal work or unavoidable emergencies. These are called as Leaves. Such data is vital and needed for calculating the payments of an employee.
2.2.2.3 Employee Accounts Data This data is required to calculate the salary components like Basic, Dearness Allowance, Reimbursements, Allowances, Perks, Tax and Bonus etc. of an employee. This data is fed once in a system. Therefore, his monthly salary calculations are automated depending on the time data provided.
2.2.2.4 Employee other data This includes all additional data updated from time to time related to employees travel, trainings, appraisal, etc. Thus, employee data is stored in and available at all times in the database, since it is necessary according to statutory demands, to account and audit the manpower of an organization.
2.2.3 Knowledge Management System Knowledge Management (KM) comprises a range of strategies and practices used in an organization to identify, create, represent, distribute and enable adoption of insights and experiences. Such insights and experiences comprise knowledge, either embodied in individuals or embedded in organizations as processes or practices. The employee database helps in retrieving various reports for the management combined with the human experts that help to gather insights from the reports, collectively known as knowledge management system. This is the first step towards maintaining an efficient HRMS for an organization. The HR department generally is responsible to keep such details and furnish it as and when required.
2.3 Recruitment – Technique
Recruitment refers to the process of attracting, screening and selecting qualified people for a job at an organization or firm. (Apr 12) Example: Consider a case of one company where one of manager resigns and leaves the job. A vacancy is thus created and there is a requirement to fill the position. Such an action leads for a Recruitment process. 2.3.1 Recruitment process (Apr 11) The recruitment process starts with a creation of position within an organisation and ends with a suitable candidate being placed at the particular position. The entire process consists of following steps: 1st Step: Sourcing and screening In the first step, the suitable candidates are attracted by the organisation and unsuitable candidates filtered out. There are different ways by which the organisation can source the candidates: 1. Advertising: Prospective candidates are notified by the means of advertisement in the newspapers, online portals and other networking sources. E.g. Ascent, a part of the Times of India every Wednesday, websites like naukri.com, timesjobs.com, monster.com etc. 2. Job Fairs: For entry-level jobs, job fairs can help you recruit fresh graduates and individuals who want to change careers. Some colleges and universities sponsor on-campus job fairs. They also provide an easy way to collect resumes to help fill future vacancies. 3. Existing Database: This can be maintained based on resumes collected at job fairs, from your website or from manual submissions. The database can contain relevant information, which you can
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use to filter and find suitable resumes. This recruitment method can help fill vacancies faster at a lower overall cost than starting a fresh recruiting effort. Employment Agencies: These are very useful for hiring employees with specialized skills and senior level. The initial cost of utilizing an employment agency may be high but the long-term reward of a well-placed, highly capable employee can be greater than the initial recruitment cost. Internal Recruiting or Transfer: Existing employees have an established record of accomplishment that can be matched to a current vacancy. Even if the employee needs some additional training to fulfill all the position requirements, companies gain valuable employee relation benefits by hiring from within. This can be in form of transfers and promotions. Employee Referrals: Existing employees can be a great source of providing recruitment referrals. Encouragement can be provided for employee referrals by providing bonuses to employees for all new hires employed based on a referral. Other Sources: Campus selection (college placements), at factory gate, employment exchange can be additional sources of recruitment. Expressions of Interest (EOI):
2nd Step:
Prospective candidates submit their EOI by mailing their resumes or giving a call, which means that they are interested in the position. 3rd Step: Evaluation of Job Profile
This step defines the specifications for kind of qualities, experience, etc. are required from the desired candidate. Sometimes a document called Job Description is prepared to define the Job Profile. 4th Step: Candidate information and shortlisting
The recruiter checks the resumes in which they check out the person's experience, his current designation, project background, skills, talent, education, expected salary, etc. Amongst them few resumes are selected which closely match with the profile of the position, called as initial short listing. 5th Step: Test and/or interview
The shortlisted candidates are then given a call to come for the test and/or interview on a given date and time. There could be multiple rounds of interview based the corporate and position. The interviews are to find the most suitable candidate depending on the decided set of parameters. 6th Step: References, background check, medical tests
Through investigation is performed to check the background of the candidate. In addition, he may be asked to submit references from his previous employers. Most organizations also ask for a medical certificate from the candidates. 7th Step: Offer Letter and Appointment
The most favorable shortlisted candidate would be asked to join. The HR would offer a salary package and other benefits and explain work environment and company policies. If the employee finds the offer lucrative, he accepts the offer and the HR appoints the candidate and provides him with a date of joining.
Figure 11: Recruitment Process
2.3.2
Recruitment objectives
1. Support the organization ability to acquire, retain and develop the best talent and skills. 2. Determine present and future manpower requirements of the organization in coordination with planning and job analysis activities. 3. Obtain the number and quality of employees that can be selected in order to help the organization to achieve its goals and objectives. 4. Create a pool of candidates so that the management can select the right candidate for the right job from this pool. 5. Attract and encourage more and more candidates to apply in the organization. 6. Increase the pool of candidates at minimum cost. 7. Acts as a link between the employers and the job seekers. 8. Infuse fresh blood at all levels of the organization. 9. Meet the organization's legal and social obligations regarding the composition of its workforce. 10. Increase the effectiveness of various recruiting techniques.
2.3.3 Factors affecting Recruitment Internal factors, which are in control of an organisation, as well as external factors, which are beyond the control, can affect recruitment. 2.3.3.1 External factors 1. Supply And Demand: The availability of manpower both within and outside the organization is an important determinant in the recruitment process. If the supply is high, it will be easy for an organization to make recruitments. 2. Labour Market: Employment conditions in the community where the organization is located will influence the recruiting efforts of the organization. 3. Image / Goodwill: Image of the employer can work as a potential constraint for recruitment. An organization with positive image and goodwill as an employer finds it easier to attract and retain employees than an organization with negative image. 4. Political-Social- Legal Environment: Various government regulations prohibiting discrimination in hiring and employment have direct impact on recruitment practices. For example, Government of India has introduced legislation for reservation in employment for scheduled castes, scheduled tribes, physically handicapped etc. in government sector jobs. In addition, trade unions play important role in recruitment. This restricts management freedom to select those individuals who it believes would be the best performers. 5. Unemployment rate: One of the factors that influence the availability of applicants is overall unemployment rate in the country. 6. Competitors: The recruitment policies of the competitors also affect the recruitments. To face the competition, many a times the organizations have to change their recruitment policies according to the policies being followed by the competitors. 2.3.3.2 Internal factors (Oct 11)
1. Recruitment Policy: The recruitment policy of an organisation specifies the objectives of recruitment and provides a framework for implementation of recruitment program. 2. Human Resource Planning: Effective human resource planning helps in determining the gaps present in the existing manpower of the organization. It also helps in determining the number of employees to be recruited and what qualification they must possess. 3. Size of the firm: Depending on the size of the firm, the nature of recruitment may vary. For e.g. smaller firms may depend more on employee referrals while larger firms may employ a recruitment agency. 4. Cost: Recruitment incur cost to the employer, therefore, organizations try to employ that source of recruitment, which will bear a lower cost of recruitment to the organization for each candidate. 5. Growth and Expansion: Organization will employ or think of employing more personnel if it is expanding its operations. 2.3.4 Sources of Recruitment There are number of sources that can fulfill an organizations requirement for suitable manpower. The cheapest and best available source is used by an organization in a given situation. Most organizations use more than one source for their requirements. 2.3.4.1 Internal Sources
1. Transfers: The employees are transferred from one department to another according to the requirement and suitability of the employee for the role. 2. Promotions or Demotions: The employees are promoted with more benefits and greater responsibility based on efficiency and experience. Alternatively, they could also be demoted for lack of performance. 3. Retired and retrenched employees: They may be recruited once again in case of shortage of qualified personnel or increase in load of work. 4. Dependents or relatives of deceased or disabled employees: They may be provided the job in place of an existing employee.
2.3.4.2 External Sources
1. Press advertisements: Advertisements of the vacancy in newspapers and journals are a widely used source of recruitment. The main advantage of this method is that it has a wide reach. 2. Educational institutes: Various management institutes, engineering colleges, medical colleges etc. are a good source of recruiting well-qualified executives, engineers, medical staff etc. They provide facilities for campus interviews and placements. This source is also known as campus recruitment. 3. Placement agencies: Several private consultancy firms perform recruitment functions on behalf of client companies by charging a fee. These agencies are particularly suitable for recruitment of executives and specialists. 4. Employment exchanges: Government establishes public employment exchanges throughout the country. These exchanges provide job information to job seekers and help employers in identifying suitable candidates.
5. Labour contractors: Manual workers can be recruited through contractors who maintain close contacts with the sources of such workers. This source is used to recruit labor for construction jobs. 6. Unsolicited applicants: Many job seekers visit the office of well-known companies on their own. 7. Employee referrals: Many organizations have structured system where the current employees of the organisation can refer their friends and relatives for some position in their organisation. Current employees are suitably rewarded for providing the referrals. 8. Recruitment at Factory Gate: Unskilled workers may be recruited at the factory gate temporarily whenever a permanent worker is absent. More efficient among these may be recruited to fill permanent vacancies.
2.3.5 Purpose (Importance) of Recruitment 1. Attract and encourage more and more candidates to apply in the organisation. 2. Create a talent pool of candidates to enable the selection of best candidates for the organisation at minimum cost. 3. Determine present and future requirements of the organization in conjunction with its personnel planning and job analysis activities. 4. Help increase the success rate of selection process by decreasing number of visibly under qualified or overqualified job applicants. 5. Help reduce the probability that job applicants once recruited and selected will leave the organization only after a short period. 6. Meet the organizations legal and social obligations regarding the composition of its workforce. 7. Begin identifying and preparing potential job applicants who will be appropriate candidates. 8. Increase organization and individual effectiveness of various recruiting techniques and sources for all types of job applicants. 2.3.6 E-Recruitment Job portals (e.g. naukri.com, monster.com) are the latest trend that facilitates e-recruitment of potential candidates. The companies post the available positions with the job description and the job specification on the job portal. In addition, the job seekers can also post their resumes on such portals. Thus, job portals bring together the job seekers and the employers on a single platform and facilitate the recruitment process. Advantages of E-Recruitment are: 1. 2. 3. 4. 5. 6. Lower costs to the organisation as compared to other sources No intermediaries Reduction in the time for recruitment Facilitates the recruitment of right type of people with the required skills Improved efficiency of recruitment process Online recruitment helps the organizations to weed out the unqualified candidates in an automated way
7. Recruitment websites also provide valuable data and information regarding the compensation offered by the competitors etc. that helps the HR managers to take various HR decisions like promotions, salary trends in industry etc. Disadvantages of E-Recruitment are: 1. Screening and checking the skill mapping and authenticity of millions of resumes is a problem and time consuming exercise for organizations 2. E-Recruitment can be used only in few areas where the people are internet savvy
2.4 Employee Appraisal – Performance Efficiency
People differ in their abilities and their aptitudes. There is always some difference between the quality and quantity of the same work on the same job being done by two different people. Performance appraisals of employees are necessary to understand each employee‘s abilities, competencies and relative merit and worth for the organization. It is necessary to measure the performance of the employees and the organization to check the progress towards the desired goals and aims. Performance appraisal takes into account the past performance of the employees and focuses on the improvement of the future performance of the employees. It defines and measures the performance of the employees and the organisation as a whole. In fact, it is a tool for accessing the performance of the organisation as a whole. (Apr 11) It is important motivating factors for the employees, in the performance appraisal process is to receive a fair an accurate assessment of their performance. An employee always expects his appraiser to recognize and appreciate his achievements, support him to overcome the problems and failures.
2.4.1
Need (Objectives) for Appraisal
(Oct 11, Apr 11) 1. 2. 3. 4. 5. 6. To review the performance of the employees over a given period of time. To judge the gap between the actual and the desired performance. To help the management in exercising organizational control. To diagnose the training and development needs of the future. Provide information to assist in the HR decisions like promotions, transfers etc. Provide clarity of the expectations and responsibilities of the functions to be performed by the employees. 7. To judge the effectiveness of the other human resource functions of the organization such as recruitment, selection, training and development. 8. To reduce the grievances of the employees. 9. Helps to strengthen the relationship and communication between superior – subordinates and management – employees.
2.4.2
Commonly used Appraisal methods
1. Top-Down
In Top-Down appraisal method employee's immediate supervisor performs the evalutaion. This is very effective since manager is someone who works with that employee everyday and knows his or her strengths and weaknesses.
2. Peer-to-Peer
In Peer-to-Peer appraisal method employees at the same level to review each other. This could work effectively when the employees have the maturity to provide a honest and transparent feedback.
3. Self-Assessment
In Self-Assessment performance review employees are asked to rate themselves. It help make the employees an active part of the process and provide a vehicle for them to reflect on their own performance prior to the formal review. It is used in conjunction with other methods.
4. 360 Degree
In 360 Degree appraisal the feedback about the employees‘ performance comes from all the sources (peers, managers, subordinates, team members, customers, suppliers) that come in contact with the employee on his job. 360 degree appraisal has four integral components:
1. Self appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his achievements and judge his own performance. 2. Superior‘s appraisal forms the traditional part of the 360 degree performance appraisal where the employees‘ responsibilities and actual performance is rated by the superior. 3. Subordinates appraisal gives a chance to judge the employee on the parameters like communication and motivating abilities, superior‘s ability to delegate the work, leadership qualities etc. 4. Feedback given by peers can help to find employees‘ abilities to work in a team, co-operation and sensitivity towards others.
360 degree performance appraisal is also a powerful developmental tool because when conducted at regular intervals (e.g. yearly) it helps to keep a track of the changes others‘ perceptions about the employees. A 360 degree appraisal is generally found more suitable for the managers as it helps to assess their leadership and managing styles.
5. Rank and Yank strategy
It is also known as the ?Up or Out‘ policy.The Rank and Yank strategy refers to the performance appraisal model in which the employees are ranked from best-to-worst and poor performers are separated from the good performers. Thus, the employee is evaluated relative to performance of other employees. Then the
action plans and the improvement opportunities of the poor performers are discussed and they are given action plan to improve their performance in a given time period. 2.4.3 Performance Efficiency and Appraisals In modern times, appraisals are used to link compensation to performance. It is also known as ?Performance pay‘ or ?Performance based variable pay‘. It links the compensation of the employees to their performance and their contribution to the organizational goals. Commissions, incentives and bonuses, piece rate pay help the employer to pay the employee according to their productivity and hard work. The different steps as part of linking performance to the variable pay are as follows:
1. Establish performance standards
The first step in the process of performance appraisal is the setting up of the standards that will be used to as the base to compare the actual performance of the employees. The standards set should be clear, easily understandable and in measurable terms. The objectives set for the employee should be in line with the organizational objectives.
2. Communicate these standards to the employee
The employees should be informed and the standards should be clearly explained to the employees. This will help them to understand their roles and to know what exactly is expected from them.
3. Measure the actual performance
A continuous process involves monitoring the performance throughout the year. This stage requires the careful selection of the appropriate techniques of measurement. Different proofs substantiating the claim for the performance are collected as part of measuring the actual performance.
4. Compare actual performance against expected performance
The actual performance is compared with the desired or the standard performance. The comparison tells the deviations in the performance of the employees from the standards set. It includes recalling, evaluating and analyzing of data related to the employees‘ performance.
5. Discuss the results
The result of the appraisal is communicated and discussed with the employees on one-to-one basis. Constructive feedback for improvement areas as well as appreciation for excellent performance should be communicated during the discussion.
6. Decision Making
Required corrective actions or the HR decisions like rewards, promotions, demotions, transfers etc. are performed as part of last step of the process.
2.4.4
Types of Performance Pay
There are different types of performance pay that can be offered to the employees: ? Merit or variable pay – Some part of salary according to the position and the rank of the employee is set aside as variable part of the salary is based on the periodic performance reviews. Profit Sharing – Sharing the profits of the enterprise with the employees as bonus. Incentives and performance Bonus – Rewards for special accomplishments or fulfillment of the targets set such as sales commission. Gain sharing - Sharing of gains because of the increased performance of the employees with them.
? ? ?
2.4.5
Problems (Limitations) in Performance Appraisal (Apr 12)
1. Halo effect: In this case, the superior appraises the person on certain positive qualities only. The negative traits are not considered. Such an appraisal will not give a true picture about the employee. In some extreme cases, employees who do not deserve promotions may get it. 2. Horn effect: In this case only the negative qualities of the employee are considered and based on this appraisal is done. This again will not help the organization because such appraisal may not present a true picture about the employee. 3. Central tendency: In this case, the superior gives an appraisal by giving central values, as he may not be able to arrive at a correct value. This prevents a talented employee from getting promotions he deserves and some employees who do not deserve anything may get promotion. 4. Leniency and strictness: Some bosses are lenient in grading their employees while some are very strict. Employee who really deserves promotions may lose the opportunity due to strict bosses while those who may not deserve may get benefits due to lenient boss. 5. Spillover effect: in this case, the boss depending upon the past performance judges the employee positively or negatively. Therefore, although the employee may have improved performance, he may still not get the benefit. 6. Fear of losing subordinates and spoiling relations: Many bosses do not wish to spoil their relations with their subordinates. Therefore, when they appraise the employee they may end up giving higher grades that are not required. This is an injustice to really deserving employees
2.5 Employee Training
Training is an effective way to train and develop, impart new skills, improve efficiency and retain the employees.
2.5.1 Objectives of Training The principal objective of training and development division is to make sure the availability of a skilled and willing workforce to an organization. In addition to that, there are four other objectives:
1. Individual objectives: Training helps employees in achieving their personal goals, which in turn, enhances the individual‘s contribution to an organization. 2. Organizational objectives: Training assists the organization with its primary objective by bringing individual effectiveness. 3. Functional objectives: Training maintains the department‘s contribution at a level suitable to the organization‘s needs. 4. Societal objectives: Training also ensures that an organization is ethically and socially responsible to the needs and challenges of the society.
2.5.2 Assessing Training needs It is important to assess training needs to find common training programs for a group of employees. Training needs can be assessed by simple method such as asking an employee what they would like to be able to do better or as complex as developing an individualized training plan for every employee. Conducting a simple training need assessment survey can also help to understand the needs of the employees.
2.5.3 Training methods Training can be classroom training or on-the job training. Some of the methods of training are: Classroom training:
1. 2. 3. 4. 5. 6.
Lectures Labs or Demonstration Distance Learning E-Learning (Computer Based Training (CBT)) Seminars/Workshops or Discussions Simulations
On-the-job (OTJ) training: 1. Mentoring 2. Coaching 3. Job Rotation
2.5.3.1 Classroom training The basic premise of classroom-based training is that there is special environment and effort created for training. Thus, it is more focused form of training with different methods to achieve the training objective: 1. Lectures It is in form of classroom lectures or offsite training, usually to teach the theoretical part of the job. It may not be very effective unless accompanied by on-the-job training. Lectures are used because of their low cost and their capacity to reach many people. 2. Labs or Demonstration In this form of training, the trainer provides a visual display of how something works or how to do something. It is sometimes conducted in a specially created environment or a lab. It is generally costly form of training used only for special purpose programs. 3. Distance Learning Distance education or distance learning is a field of education that focuses on teaching methods and technology with the aim of delivering teaching, often on an individual basis, to students who are not physically present in a traditional educational setting such as a classroom. 4. E-Learning (Computer Based Training (CBT)) E Learning (also called CBT (Computer-Based Training), IBT (Internet-Based Training) or WBT (WebBased Training)) is the computer and network-enabled transfer of skills and knowledge. E-Learning applications and processes include web-based learning, computer-based learning, virtual education opportunities and digital collaboration. Content is delivered via the Internet, intranet/extranet, audio or video tape, satellite TV and CD-ROM. It can be self-paced or instructor-led and includes media in the form of text, image, animation, streaming video and audio. 5. Seminars/Workshops or Discussions Seminars or Workshops are simply a group of people coming together for the discussion and learning of specific techniques and topics. Usually there are several keynote speakers within each seminar and these speakers are usually experts in their own fields or topics. 6. Simulations Training simulations replicate the essential characteristics of the real world that are necessary to produce both learning and the transfer of new knowledge and skills to application settings. Both machine and other forms of simulators exist. We simulate for a number of reasons, including controlling the training environment, for safety, to introduce feedback and other learning principles and to reduce cost.
2.5.3.2 On-the-job training It is usually impossible to teach someone everything she needs to know at a location away from the workplace. Thus, on-the-job training often supplements other kinds of training, e.g., classroom or off-site training. Because of its informal and unfocussed nature, the trainee may not learn all the aspects of the job: 1. Mentoring It is an ongoing relationship between a mentor (generally a senior) and a mentee (generally a junior) where the mentor provides guidance and assistance on organizations mission, vision, processes, procedures, etc. 2. Coaching Coaching is used to improve the performance of the employee with one to one interaction. The coach provides a personalized training plan for the coachee who receives a regular feedback for improvement in knowledge, skill and attitude. 3. Job Rotation This approach allows an employee to operate in diverse roles and understand different issues that crop up. It also provides the employees with opportunities to broaden the horizon of knowledge, skills and abilities by working in different departments, business units, functions and countries. 2.5.4 Ways to make Training effective
(Apr 12) 1. Motivate and familiarize: The first task should be to enable the trainees to see a need to change, a need to learn and apply the new skills. You can start your training with the consequences of failing to possess the skill. 2. Check people out on the basic skill required for learning the new skill: Certain basic skills are a prerequisite to learning other skills. You need to check if the trainees possess the prerequisite skills. For example, unless someone knows how to add and subtract, you cannot teach him or her how to balance a checkbook. 3. Teach the specific skills of the task: With mastery of the basic skills, your employees are now ready to learn specific skills. They need to be taught specific skills that will help them to perform their job effectively. 4. Teach mastery skills: Once your employees have learned the simple things, they are now ready to advance to the more complex things. There should be gradual progress in levels of learning. 5. Provide an opportunity for immediate application: Whatever skill you teach, arrange for your employees to apply/use the new skill on the job immediately after the completion of training. 6. Repetition and review are the foundation of learning: There is no substitute for repetition. Repetition is the foundation of learning. 7. Focus on the basics: When we make this mistake, it is usually because we have become bored with the ?basics? or because we actually have become arrogant and we‘ve begun thinking that we don‘t need to focus on the basic.
8. You must entertain to educate: If training is not interesting and entertaining, some people will not participate and those who will participate do not realize much in the way of benefits from the training. The more entertaining a class or training session is, the more it will be remembered and implemented.
2.5.5 Benefits from Training and Development
1. 2. 3. 4. 5. 6. 7. 8.
Increased job satisfaction and morale among employees Increased employee motivation Increased efficiencies in processes, resulting in financial gain Increased capacity to adopt new technologies and methods Increased innovation in strategies and products Reduced employee turnover Enhanced company image, e.g. being known as a progressive organisation Risk management, e.g. training about sexual harassment, diversity training
2.5.6
Training Process
1st Step:
Establish need for training
The needs analysis is the starting point for all training. This step identifies activities to justify an investment for training. The techniques necessary for the data collection are surveys, observations, interviews, etc. Several examples of an analysis outlining specific training needs are customer dissatisfaction, low morale, low productivity and high turnover. By determining training needs, an organization can decide what specific knowledge, skills and attitudes are needed to improve the employee‘s performance in accordance with the company‘s standards.
2nd Step:
Developing training programs and manuals
Standard training programs and manuals based on the needs established in first step needs to be designed. In addition, the procedure to deliver the trainings is established. Sometimes external vendors can also act as source for training programs.
3rd Step:
Conduct the training program
In this step the instruction and delivery of the training program is complete. Once you have designated your trainers, the training technique must be decided. The trainer should have the skills, knowledge, motivation and passion to teach.
4th Step:
Evaluate the training program
This step determines how effective and profitable your training program has been. Some of methods for evaluation are post training survey, cost/benefit analysis outlining your expenses and returns and an increase in customer satisfaction and profits. This step will indicate the effectiveness of both the training as well as the trainer. Evaluations are an efficient way to determine the overall effectiveness of the training program for the employees as well as the organization.
2.6 Leave Accounting and Payroll
Leaves are voluntary time off taken by employees to complete their personal work, sickness, vacation, etc. It is important that employee leaves be managed properly without the organizational goals getting affected negatively. It is also important to provide sufficient leaves to the employees.
2.6.1 Leaves Policy
Every organization decides on a policy to manage the leaves. There are variations in the types of leaves depending on type of organization. Thus, there are different policies in the government departments, public sectors/private sectors, large corporations, SME‘s etc.
Following is an indicative list of general types of leaves: (Apr 11)
? ? ? ? ? ?
Sick leaves [6-8] days Casual leaves [10-12] days Earned [paid] leaves [10-12] days National holidays [11-12] days Maternity leaves [135-180] days Paternity leaves[2-15] days
Leaves Application
2.6.2
It is important to follow a process for application and managing of leaves. Numbers of organizations are using an automated software application for management of leaves. The process starts with application of leave by the employee. If the employee has no balance left, he is asked to pay a Leave Without Pay (LWOP). Else, his application is sent to the manager for approval. The manager can decide to approve or disapprove the leave, depending on which the leave records are updated. The entire process can be shown in form of flowchart as follows:
Figure 12: Leaves Application Process
2.6.3 Payroll Payroll is the summary of all financial records of salaries for an employee, wages, bonuses and deductions. Payroll and payroll taxes considerably affect the net income of most companies and they are subject to laws and regulations. Payroll is a critical department as employees are responsive to payroll errors and irregularities. It is important for payroll to be paid timely and accurately. Some of the organizations use the traditional manual method of payroll processing and some go for the advanced payroll processing software. An organization opts for any of the following payroll processing methods available:
1. Manual System: Manual payroll system is the traditional payroll system that involves pen and ink, adding machine, spreadsheet, etc. instead of computers, software and other
computerized aids. Generally small-scale organizations, construction industry and manufacturing industry use the manual payroll systems for the contractual labor, as these contracts are on daily/weekly basis. The process is tedious, time consuming and risky as it is more prone to errors. 2. Accountant: In this system, an accountant, who is a professional having a degree/diploma course in finance/accountancy is responsible for all the activities related to payroll accounting. He/she has the sound knowledge of accounting principles and globally accepted standards. The process adds costs to the organization. It involves paying someone who is responsible for calculating the salaries of others. 3. Payroll Software: In this system, automated software that performs every action needed by the payroll process is used. It helps in calculating the payable amounts and deductions very easily. It also helps in generating the pay slips in lesser time. Automated calculations result in no errors. The software validates data automatically. It needs professionals to make use of the software for its efficient working. 4. Payroll Outsourcing: It involves outsourcing the job calculations of salaries and deductions to third party. The outsourcing organization is responsible for all the activities of the payroll accounting. It saves time and cost for the organization. It is generally used in organizations having large number of employees. The outsourcing company performs the various payroll functions like analysis of payroll records, payroll taxes, medical claim processing, employee insurance and provident fund processing, etc.
2.6.4 Advantages of payroll software
1. Payroll calculations such as tax and insurance deductions can be completed in a fraction of the time that they take to work out manually. Pay slips and year-end reporting is usually automated. 2. Payroll systems can also incorporate or integrate with, timesheet systems that record employee attendance or time worked. 3. Using basic payroll data, together with data on attendance and hours worked, payroll systems can provide a wealth of reports. This allows in-depth analysis of staff costs for the business as a whole, across departments and even individual jobs and contracts. 4. Most organizations will also keep other data about employees, such as records of annual leave. You can get payroll systems that will record these additional types of information, avoiding the need for a separate software package. 5. The ability of payroll packages to provide forecasts means you can plan staff costs and budgets by entering hypothetical numbers to see the exact total cost of an employee.
2.6.5 Payroll Reports
Some of the sample reports that can be generated from payroll software are:
1. Pay slip 2. Attendance register 3. Department-wise salary
4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
Employee-wise salary Salary disbursement Income tax Statement Form No 16 PF Contribution Accumulation statutory deductions PF EPS Other deduction Advances Investment definition, types, limits Proposed and actual Investments Various HR Reports
2.6.6
Following reports could be generated from Human Resource Management System:
COMPANY ? ? ? ? ? ? ? ? ? ? ? ? ? Company Details Assets Details Asset Location Details Asset De-active details Company Holiday List Leave Types Details Professional Tax Details Contractors Details Bank Details Award types Bonus Types Vehicle Details Facility Details
EMPLOYEE ? ? ? ? ? ? ? Employee Joining Information Employee Probation Details Employee Profile Employee Salary Structure Transfer / Promotion Details Salary Increment Details Document submitted Details
? ? ? ? ? ? ? ? ? ? ? ?
Resigned Employee Details Department Wise Employee List Blood Group Employee List Assets Given to Employee Family Background Details Medical History/Annual Check-up Details Emergency Address – Contacts Details Awards Given to Employee Birthday List Employee Membership Details Employee Training History Employee Appraisals History
EMPLOYEE PROFILE ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Employee Joining Information Probation Confirmation details Company Hierarchy based on Grades and Designation Employee Current position and job profile Family background details Employee Local address and References details Employee Emergency address and contact person details Employee Qualification and experience details Employee Medical History Awards given to Employee and their Children Documents submitted by employee Assets given to employee Employees extra Circular Activities / sports / social etc. Employee Appraisals History Facility given to Employee
EMPLOYEE TRANSFER, PROMOTIONS & INCREMENTS ? ? ? Transfer Details Promotion Details Increment Details
LEAVE AND ATTENDANCE ? ? Employee Leave Application Employee Leave Approval
? ? ? ? ? ? ? ? ? ? ? ?
Leave Balance Late Coming Late Sitting Early Going Compensate Off Details Shift Details Employee Current Shift Over Time Details Employee Total Over Time Hours Daily Attendance Report Daily Absent Report Monthly Attendance
LEAVE MANAGEMENT SYSTEM ? User Defined Leave types ? Leave Balance Details ? Leave Application ? Leave Approvals ? Leave Rules PAYROLL ? ? ? ? ? ? ? ? Salary Heads Details Monthly Salary Register Salary Statement Depositing in Bank Salary Cash Statement Salary Cheque Statement Salary Slip Bonus Details Conveyance Details
TIME MANAGEMENT SYSTEM ? Employee Shift & Shift rotation with respect to shift cycle ? Employee time management, Late Coming, Early going, Absence due to travel on Duty etc. ? Attendance data can be transfer from any Time Recording Machine ? Overtime Details HRD PROCEDURES
? Final Settlement ? Gratuity ? Superannuation ? Tax Calculation GOVERNMENT OF INDIA TAXATION FORMS ? ? ? ? ? ? ? ? ? ? ? ESIC Challans PF Challans PT Challans Form 6A (Employees Yearly PF Contribution) Form 3 - (For Professional Tax) Form 12A (Revised) - Employee's Monthly PF Contribution Form 3A (Revised) Details of Employees Pension Fund Scheme – Yearly Form 19 (Claiming Employees Provident Funds Dues) Form 10 C - Pension (For Claiming PF Withdrawal) Form - 10 (Employee‘s PF Organization for Resigned Employee's) Form – 24 (Annual salary returns of the employees)
2.7 Components of designing Human Resource Management System
Consider a simple Employee Management System. Most common data components of such a system are:
1. 2. 3. 4. Personal Data Address Data Family Data Qualification/Education
5. Payroll/Time Field PERNR UNAME PREAS NAME2 NACH2 VORSW GBLND GBDEP Datatype NUM CHAR CHAR CHAR CHAR CHAR CHAR CHAR Length 8 12 2 40 40 15 3 3 Description Personnel number Name of person who changed object Reason for Changing Master Data Name at Birth Second Name Name Prefix Country of Birth State
GBORT NATIO NATI2 NATI3 SPRSL KONFE FAMST FAMDT ANZKD GBJHR GBMON GBTAG Field PERNR SUBTY SPRPS ENDDA BEGDA AEDTM UNAME ORDEX PREAS ANSSA NAME2 STRAS ORT01 ORT02 PSTLZ LAND1 TELNR ENTKM BUSRT LOCAT ADR03 ADR04 STATE
CHAR CHAR CHAR CHAR LANG CHAR CHAR DATE NUM NUM NUM NUM Datatype NUM CHAR CHAR DATE DATE DATE CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR NUM CHAR CHAR CHAR CHAR CHAR
40 3 3 3 1 2 1 8 3 4 2 2 Length 8 4 1 8 8 8 12 1 2 4 40 60 40 40 10 3 14 3 1 3 40 40 40 3
Birthplace Nationality Second Nationality Third Nationality Language of communication Religious Denomination Key Marital Status Key Valid From Date of Current Marital Status Number of Children Year of Birth Month of Birth Birth Date (to Month/Year) Description Personnel number Subtype Lock Indicator for HR Master Data Record End Date Start Date Last changed on Name of person who changed object Confirmation Fields Exist Reason for Changing Master Data Address Record Type C/O name Street and house number City District Postal Code Country key Telephone number Distance in Kilometers Company Housing Bus Route 2nd address line Street 2 Street 3 Region (State, Province, County)
WKWNG CHAR
HSNMR POSTA BLDNG FLOOR STRDS ENTK2 COM01 Field PERNR SPRPS ENDDA BEGDA AEDTM ORDEX RESE2 FAMSA FGBDT FGBLD FANAT FASEX FAVOR FANAM FGBOT FGDEP ERBNR FGBNA FNAC2 FCNAM FKNZN FINIT FNMZU KDSVH KDBSL KDUTB KDGBR KDART
CHAR CHAR CHAR CHAR CHAR NUM CHAR Datatype NUM CHAR DATE DATE DATE CHAR CHAR CHAR DATE CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR NUM CHAR CHAR CHAR CHAR CHAR CHAR CHAR
10 10 10 10 2 3 4
House Number Identification of an apartment in a building Building (number or code) Floor in building Street Abbreviation Distance in Kilometers Communication Type
Length Description 8 1 8 8 8 12 1 2 4 8 3 3 1 40 40 40 3 12 40 40 80 2 10 15 2 2 2 2 2 Personnel number Lock Indicator for HR Master Data Record End Date Start Date Last changed on Name of person who changed object Confirmation Fields Exist Reserved Field/Unused Field of Length 2 Type of family record Date of Birth Country of Birth Nationality Gender Key First Name Last Name Birthplace State Reference personnel number of family member Name at Birth Second Name Complete Name Name Format Indicator for Employee in a List Initials Other Title Relationship to child Extra pay entitlement Address of child Child allowance entitlement Child type
UNAME CHAR
KDZUG KDZUL KDVBE ERMNR FASDT FASAR FASIN BETRG TITEL EMRGN Field PERNR SPRPS ENDDA BEGDA AEDTM ORDEX PREAS ABRSP ABRDT RRDAT PRDAT PKGAB ABWD1 ABWD2 BDERR BDER1 KOBDE TIMRC DAT00 UHR00 SACHZ RCBON
CHAR CHAR CHAR CHAR DATE CHAR CHAR NUM CHAR CHAR Datatype NUM CHAR DATE DATE DATE CHAR CHAR CHAR DATE DATE DATE DATE DATE DATE DATE DATE CHAR CHAR DATE TIME CHAR DATE
2 2 2 8 8 2 20 9 15 1
Child bonuses Child allowances Sickness certificate entitlement Authority number End of family member's education/training School type of family member Educational institute Amount Title Emergency contact
Length Description 8 1 8 8 8 12 1 2 1 8 8 8 8 8 8 8 8 1 1 8 6 3 8 Personnel number Lock Indicator for HR Master Data Record End Date Start Date Last changed on Name of person who changed object Confirmation Fields Exist Reason for Changing Master Data Indicator: Personnel number locked for payroll Accounted to Earliest master data change since last payroll run Earliest personal retroactive accounting date Date as of which personal calendar must be generated End of processing 1 (run payroll for pers.no. up to) End of processing (do not run payroll for pers.no. after) Recalculation date for PDC Effective recalculation date for PDC PDC Error Indicator Date of initial PDC entry Initial input date for a personnel number Time of initial entry Administrator for Time Recording Earliest payroll-relevant master data change (bonus)
UNAME CHAR
2.8 Case Study on Human Resource Management
Problem Statement ?HealthSoft Application Services Pvt. Ltd.? develops mobile-based software applications for health services and has offices in Pune and Nasik having 150 employees. HealthSoft has decided to expand operations further and launch new products. Its managers know that they have to expand its employment from 150 to 500 in next 1 year. In addition, the company branch at Nasik needs to be closed, due to low performance. But then there are a few employees, employed at Nasik office, which have very good management skills; and a few who are technically skilled. These employees are the company‘s assets & would not want to lay them off.Suggest suitable business process that can be used for recruitment at Pune and handle the closure of branch at Nasik. Specify the different input documents (detailed documents) that are necessary for your specified business process and suggest any supporting reports that can be obtained from your specified business process.
Approach to solve the Case Study: The Case Study deals with improvement of the Human Resource Management System for a company.
1. First collect the direct stated facts: ? The company decided to expand its operation in Pune. ? The company decides to close operations in Nasik. ? There are a few employees in Nasik, the company wish to retain, as assets. 2. Then collect the unstated facts: ? Hiring is required to bring in new resources to the organization. ? Option for Internal Hire (or Transfer) should be opened up for potential candidates Nasik location to Pune location. 3. Specify the input documents that can be used to improve the process. Draw the document formats wherever possible: ? An employee requisition form from various departments stating the requests for hiring respective positions needed. The HR coordinates with different departments for their demands of filling new employees. All the respective department heads fill their requirements in the HRMS. ? Job descriptions - requirement of experience, skills, age, salary, position etc. ? Specify details about external and internal sources, recruitment process ? The company HR may also use HRMS system to find suitable candidates to shift from Nasik to Pune, using the following search/report criterion. ? The reports used as inputs from any HRMS are:
i.
Employee details - personal and official like name, address, family details, age, official such as - department details, reporting structure, etc. Employee Skills Employee Experience summary Employee‘s performance rating based on their appraisal score
ii. iii. iv.
v.
Employee salary structure
4. List output reports which can be generated from the Human Resource Management System are: ? Report for Interview dates for recruitment drives ? Report for status of each candidates ? Report for joining dates and other formalities for candidates ? Report for Total Compensation provided to each candidate
2.9 Exercise
Answer in brief (1-2 lines): 1. Define Human Resource Management. (Refer 2.1) 2. Define Organization. (Refer 2.1) 3. What is On-the-job training? (Refer 2.5.3) 4. What is the objective of performance appraisal? (Oct 11) (Refer 2.4.1) 5. Give the names of any two types of leaves.(Apr 11) (Refer 2.6.1) 6. What is recruitment?(Apr 12) (Refer 2.3) 1 mark
Write Short Note: 1. Leave accounting (Refer 2.6) 2. Process for leave application (Refer 2.6.2) 3. Recruitment sources (Refer 2.3.4) 4. Employee Appraisal (Refer 2.4) 5. Components of employee database (Refer 2.7) 6. E-Recruitment (Refer 2.3.6) 7. How to make training effective?(Apr 12) (Refer 2.5.4)
3 marks
Answer the following in detail: 5 marks 1. What is HRM (Human Resource Management)? In HRM, which policies and practices carried out by management? (Refer 2.1.2 & 2.1.3 & 2.1.4) 2. Explain the scope of HRM? (Refer 2.1.3)
3. Discuss need for HRM in modern organizations. (Refer 2.1.6) 4. What is recruitment? What are the internal and external factors for recruitment? (Oct 11) (Refer 2.3.3) 5. What are the different methods of recruitments? Explain with example. Differentiate between external and internal recruitment? State advantages and disadvantages of each. (Refer 2.3.4) 6. What is purpose of recruitment? (Refer 2.3.2) 7. Explain the recruitment process with the help of neat diagram.(Apr 11) (Refer 2.3.1) 8. What is meant by performance appraisal? Give any four objectives of appraisal.(Apr 11) (Refer 2.4 & 2.4.1) 9. ?Judgment errors may be one of the problems in Appraisal.? State True or False with reason (Refer 2.4.5)
10. Which are methods and technique of training? What is on-the-job training and off-the-job training? (Refer 2.5.3) 11. What are inputs in training and development? (Refer 2.5.4) 12. What are the objectives of employee training? (Refer 2.5.1) 13. List any four traditional methods of appraisal. (Refer 2.4.2) 14. Discuss Training Process. (Refer 2.5.6) 15. Explain the process of linking performance to the variable pay? (Refer 2.4.3) 16. What are the problems appear in appraisal? Explain any two of them in detail. (Apr 12) (Refer 2.4.5) 17. Explain different methods for payroll processing? (Refer2.6.3)
Case Study: ?Mahindra & Mahindra? is a vehicle manufacturing company having branches at Kandivali, Igatpuri and Nashik in Maharashtra. At each locationaround 500 employees are working. There is no scope for expansion of the company due to non-availability of space and political issues. Many other states offering the company a good package, providing a large space and other required facilities. Hence, company has decided to start a new plant in other state, by minimizing the strength of each existing plant by25%. Due to this many existing employees may have a chance of losing their jobs. These employees are company‘s assets and would not want to lose their skilled manpower. Company wants to adjust them to the new plant. Suggest a suitable business process model that can be used for recruitment sat new plant. To specify a business process: (Oct 11) a) Suggest main processes using any diagram. (2) b) Suggest at least 3 input documents in detail. (3) c) Suggest at least 2 report layouts in detail. (2)
3
MANUFACTURING / PRODUCTION PLANNING CONTROL SYSTEM
Objective:
Manufacturing and production planning is the backbone of any industry. The objective of this chapter is to understand the different types of planning like manpower, material resource, capacity and different aspects of like work order management and material procurement. These are important concepts to understand a Manufacturing and Production Planning and Control System.
3.1 Introduction to Production System
Production is a process whereby raw material is converted into semi-finished products and thereby adds to the value of utility of products, which can be measured as the difference between the value of inputs and value of outputs. Production function encompasses the activities of procurement, allocation and utilization of resources. The main objective of production function is to produce the goods and services demanded by the customers in the most efficient and economical way.
Inputs
Conversion Process
Outputs
Land Building Labour Material
Goods and Services Control or Feedback
Figure 13: Production System
3.2 Capacity Requirements Planning for Equipment
3.2.1 Capacity Planning
Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. Capacity is the maximum amount of work that an organization is capable of completing in a given period of time. It is used to determine how much capacity is needed (and when) in order to manufacture greater product or begin production of a new product. A number of factors can affect capacity—number of workers, ability of workers, number of machines, waste, scrap, defects, errors, productivity, suppliers, government regulations and preventive maintenance. Capacity planning is relevant in both the long term and the short term. Let us discuss each of them in detail:
3.2.1.1 Long-term capacity planning
Over the long term, capacity planning relates primarily to strategic issues involving the firm's long term goals. The tenure under consideration is generally more than six months. For example: ABC computers have a constant production of 60 PCs a month. Latest sales analysis states that orders in hand are continuous and a new schedule on PPC says that average increased capacity should now be 100 computers. The sales forecast demands this continuous or even higher in the coming decade. The PPC management now decides to increase the staff and expand to another production facility as a part of long term planning. Long term changes to capacity can be made by: ? ? ? ? Increase on major production facilities Moving to new location Using a new technology Change the existing production process
3.2.1.2 Short-term capacity planning
In the short term, capacity planning concerns issues of scheduling, labour shifts and balancing resource capacities. The goal of short-term capacity planning is to handle unexpected shifts in demand in an efficient economic manner. The time frame for short-term planning is frequently only a few days but may run as long as six months. For example: Considering the same example above with a little change; ABC computers have a constant production of 60 PCs a month. Suddenly there is an order of 100 computers on an urgent basis of the current month. This is a rare case and sales team predicts such orders are special or not recurring. This to bridge up this requirement following short terms plan may be taken: Outsource 40 machines to a vendor or work for more hours a day or week (overtime). Short term changes to capacity can be made by: ? ? ? ? ? Working overtime Hiring temporary resources Adding shifts Subcontracting Cross training of resources
3.2.2 Manpower Planning
Manpower Planning consists of putting right number of people, right kind of people at the right place, right time, doing the right things for which they are suited for the achievement of goals of the organization. The procedure for manpower planning is as follows: 1. Analyzing the current manpower inventory - Organizations usually profile the current workforce taking several factors into consideration such are number, age, gender, skill sets, experience etc. 2. Making future manpower forecasts – in terms of quantity, skills required etc.
3. Developing employment programmes – includes recruitment, selection, placement, etc. 4. Design training programmes - Training needs of present workforce are determined and promotion and succession plans are chalked out for the employees
3.2.2.1 Different Procedures in Manpower Planning
1. Status Quo Planning Method: In this method people who are promoted or leave the job are replaced. Basically it seeks to replace any changes in higher level management with suitable employees. 2. Thumb Rule: Either based on forecast or past experience an optimal ratio of employees is maintained to meet the firm‘s human resource requirements. 3. Delphi Method: Expert opinion on the company products and human resource needs is obtained from a panel in the form of independent judgment through an interview or a questionnaire. 4. Unit Forecasting: Supervisors make an estimate along with managers about the human resource needs of the company for the upcoming year. 5. Computer Simulation: Various environmental and company variables are used in computer simulations to predict and forecast the human resources needs.
3.2.2.2 Importance (Need) of Manpower Planning 1. Key to managerial functions: The four managerial functions, i.e., planning, organizing, directing and controlling are based upon the manpower. Therefore, staffing becomes a key to all managerial functions. For example: Shortages and surpluses can be identified so that quick
2. action can be taken wherever required. Efficient utilization: Manpower planning helps in utilizing the human resources efficiently. It also helps to reduce the labour cost as excess staff can be identified and thereby overstaffing can be avoided. Motivation: It helps in of developing motivational programmes, i.e., incentive plans to be framed for further participation and employment of employees in a concern. Better human relations: Human relations become strong trough effective control, clear communication, effective supervision and leadership in a concern. Staffing function also looks after training and development of the work force which leads to co-operation and better human relations. Higher productivity: Productivity level increases when resources are utilized in best possible manner through performance appraisal, training and development.
3. 4.
5.
3.3 Material Requirements Planning (MRP I)
Material requirements planning (MRP I) is a production planning and inventory control system used to manage manufacturing processes. MRP is used to primarily for creation of material requirements and time-phasing of requirements by checking the average lead times. Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, at the lowest possible cost. Consider two different scenarios:
? ?
If company purchases insufficient quantities of an item used in manufacturing (or the wrong item) it may be unable to meet contract obligations to supply products on time. If a company purchases excessive quantities of an item, money is wasted - the excess quantity ties up cash while it remains as stock and may never even be used at all.
MRP is a tool to deal with these problems. It provides answers for several questions: ? ? ? What items are required? How many are required? When are they required?
MRP can be applied both to items that are purchased from outside suppliers and to sub-assemblies, produced internally, that are components of more complex items.
3.3.1 Objectives of MRP
1. 2. 3. 4. 5. Ensure that materials and products are available for production and delivery to customers Maintain the lowest possible level of inventory Plan manufacturing activities, delivery schedules and purchasing activities MRP enables all components to be available at scheduled times and thereby promotes efficiency It helps to arrive at accurate cost
3.3.2 MRP Inputs
1. 2. 3. 4. 5. 6. Demand forecasts for end products being created How much is required at a time When the quantities are required to meet demand Shelf life of stored materials Inventory status records Bills of materials: Details of the materials, components and sub-assemblies required to make each product 7. Planning data: This includes all the restraints and directions to produce the end items like Routings, Labor and Machine Standards, Quality and Testing Standards, Scrap Percentages and other inputs
3.3.3 MRP Outputs
There are two outputs and a variety of messages/reports: 1. Output 1 is the "Recommended Production Schedule" which lays out a detailed schedule of the required minimum start and completion dates, with quantities, for each step of the Routing and Bill of Material required satisfying the demand from the Master Production Schedule (MPS) 2. Output 2 is the "Recommended Purchasing Schedule" which lays out both the dates that the purchased items should be received into the facility and the dates that the purchase orders should occur to match the production schedules
3.3.4 Manufacturing Resource Planning (MRP II)
MRP II was developed as the second generation of MRP to address some of the shortcomings of MRP and it features the closed loop system: MRP II includes the following four major additional features as compared to MRP: 1. Feedback: MRP II includes feedback from the shop floor on how the work has progressed, to all levels of the schedule so that the next run can be updated on a regular basis. For this reason it is sometimes called 'Closed Loop MRP'. 2. Resource Scheduling: There is a scheduling capability within the heart of the system that concentrates on the resources, i.e. the plant and equipment required to convert the raw materials into finished goods. For this reason the initials `MRP' now mean Manufacturing Resources Planning. 3. Batching Rules: Batching rules can be incorporated; indeed they have to be if resource scheduling is to take place. Thus output is produced in terms of batches. 4. Software extension programs: A number of other software programs are included in the MRP II. Some of these are further designed to help the scheduling procedure. For example it may include an option for entering and invoicing sales orders (Sales Order Processing). Another common extension is into stock recording and a third into cost accounting. A full MRP II implementation can therefore act as an integrated database for the company. 5. Data accuracy: Errors in recording in one part of the system will result in problems for all the users. The suppliers of such systems encourage users to aim for accuracy of between 95% and 98%.
3.3.5 Advantages of MRP
MRP systems offer many advantages over traditional systems, including: 1. 2. 3. 4. 5. 6. 7. 8. 9. Improved business results (i.e., return on investment, profits) Improved manufacturing performance results Better manufacturing control More accurate and timely information Fewer inventories Time-phased ordering of materials Less material obsolescence Higher reliability More responsiveness to market demand and reduced production costs
3.4 Production Planning and Control
Production Planning and Contol
Production Planning
Production Control
Planning
Dispatching
Routing
Following up
Scheduling
Inspection
Loading
Corrective action
Figure 14: Production Planning and Control System
Production planning: It consists of four steps of planning, routing, scheduling and loading: a. Planning Production planning is be defined as the technique of foreseeing every step in a long series of separate operations, each step to be taken at the right time and in the right place and each operation to be performed in maximum efficiency. It helps to work out the quantity of material, manpower, machine and money required for producing predetermined level of output in given period of time. b. Routing The main aim of routing is to determine the best and cheapest operations, their path and sequence. To perform these operations the proper class of machines and personnel required are also worked out. Routing procedure helps to answer questions like what to make and what to buy, manufacturing operations and their sequence c. Scheduling It involves working out of time that should be required to perform each operation and also the time necessary to perform the entire series as routed, making allowances for all factors concerned. Scheduling is mainly concerned with time element and priorities of a job. The different types of schedule are: Master Schedule: Scheduling usually starts with preparation of master schedule which is weekly or monthly break-down of the production requirement for each product for a definite time period. It helps to
understand the total production requirements and helps to shift the production from one product to another as per the changed production requirements Production schedule: The main objective of preparing the production schedule is to plan the amount of work that can be easily handled by plant and equipment without interference and takes into account factors like physical plant facilities, personnel, material, etc. Manufacturing schedule: It is prepared on the basis of type of manufacturing process involved. It is very useful where single or few products are manufactured repeatedly at regular intervals. d. Loading The next step in the execution of the schedule plan as per the route chalked out includes the assignment of the work to the operators at their machines or work places. So loading determines who will do the work as routing determines where and scheduling determines when it shall be done Production control: Production control is the process of regulating and stimulating the orderly show of materials in the manufacturing process from beginning to end. It issues the necessary orders for start and follow-up to have the smooth function of the enterprise. It consists of four steps of dispatching, follow-up, inspection and correction. a. Dispatching It involves issue of production orders for starting the operations. Necessary authority and conformation is given for movement of materials, tools and fixtures, beginning of work on each operation, etc. b. Follow-up It involves determination of the progress of work, removing bottlenecks in the flow of work and ensuring that the productive operations are taking place in accordance with the plans. It spots delay or deviations from the production plans. c. Inspection This is mainly to ensure the quality of goods. It can be required as effective agency of quality control. d. Corrective measures They involve those activities of adjusting the route, rescheduling of work, changing the workloads, repairs and maintenance of machinery or equipment, control over inventories, etc. Also, certain personnel decisions like training, transfer, demotion etc. may have to be taken.
3.4.1 Objectives of PPC
1. 2. 3. 4. 5. Timely delivery of products without losing its quality and quantity To maximize utilization of available resources Reduction of wastages and scrap, thus controlling the losses To integrate with various production activities Reduce back tracking of production processes
3.4.2 Functions of PPC
1. 2. 3. 4. 5. 6. Prepare work orders and plans for product manufacture Control over material usage and reduce scrap Evaluate work schedule by monitoring progress reviews Monitor cost by comparing actual to planned Control over machines, tools and equipments Co-ordinate with different modules to plan and optimize processes
3.4.3 Factors affecting PPC
1. 2. 3. 4. Inventory level Available resources Production type – Batch, make to order or mass Design and nature of the product
3.4.4 Advantages of PPC
1. 2. 3. 4. 5. 6. Increased production efficiency and throughput Requirements are specified and met appropriately Lower production cost Decrease or eliminate errors and wastages Eliminate production process bottlenecks Increased customer relations and profit margin
3.4.5 Work Order Management
In a manufacturing environment, a work order (or job order) is converted from a sales order to show that work is about to be begin on the manufacture, building or engineering of the products requested by the customer. In a service environment, a work order can be equivalent to a service order where the work order records the location, date and time the service is carried out and the nature of work that is done. A rate the total amount of hours worked and total value is also shown on the work order. Thus the work order will state: ? ? ? ? the quantity of the product to be manufactured built or fabricated the amount of raw material to be used its price and amount the types of labour required, rate (per hour or per unit) and amount the machine utilization for each machine during the routing process, its rate and amount
Work Order Management requires multiple steps in a sequential process like Capture, Validation, Fraud Check, Payment Authorization, Sourcing, Backorder management, Pick, Pack, Ship and associated customer communications. Order management systems usually have workflow capabilities to manage this process.
3.4.6 Functions of Work Order Management
1. 2. 3. 4. 5. 6. Releasing of manufacturing orders Withdrawal of material from stores Inventory management Issuing tools for manufacturing process Allocation of jobs to machine Quality inspection and suggesting corrective measures
3.4.7 Categories of Materials
Material is usually classified in two categories: Direct Material: All items such as raw materials, standard and specialized parts and sub-assemblies required to assemble or manufacture a complete product. Direct material costs are assignable to a specific product, cost centre or work-order. (Oct 11) Indirect Material: Consumables (such as cleaning chemicals, disposable tools, protective devices) not used as raw materials, but which make the production of a good or service possible, more efficient or safer. Indirect material costs are not readily identifiable with a specific product or job. They are termed indirect costs and are charged to overhead accounts. (Apr 11)
3.4.8 Economic Order Quantity (EOQ)
Economic Order Quantity is that size of the order that gives maximum economy in purchasing any material and ultimately contributes towards maintaining the materials at the optimum level and at the minimum cost. In other words, the (EOQ) is the amount of inventory to be ordered at one time for purposes of minimizing annual inventory cost. The quantity to order at a given time must be determined by balancing two factors: 1. Cost of possessing or carrying materials 2. Cost of acquiring or ordering materials Purchasing larger quantities may decrease the unit cost of acquisition, but this saving may not be more than offset by the cost of carrying materials in stock for a longer period. The carrying cost of inventory may include: 1. Interest on investment of working capital 2. Property tax and insurance 3. Storage cost, handling cost 4. Deterioration and shrinkage of stocks 5. Obsolescence of stocks
Underlying Assumptions of Economic Order Quantity:
1. 2. 3. 4. 5.
The ordering cost is constant The rate of demand is constant The lead time is fixed The purchase price of the item is constant i.e. no discount is available The replenishment is made instantaneously; the whole batch is delivered at once
Formula of Economic Order Quantity (EOQ): The following formula is usually used for the calculation of EOQ:
? ? ?
A = Demand for the year Cp = Cost to place a single order Ch = Cost to hold one unit inventory for a year
Example to calculate economic order quantity (EOQ): ABC Computer runs a computer delivery and assembly unit. Annual demand for the Core5 is 60 computers. The annual holding cost per unit is Rs 2000 and the cost to place an order is Rs25000. Calculation:
3.5 Material Procurement
It involves whole purchase cycle to satisfy request for right quality and quantity, at the right time and within the budget. There are different steps for procuring of required material for manufacturing process: 1. 2. 3. 4. 5. 6. 7. Establishing and communicating the need for procurement by the requesting department Scrutiny of the purchase indents by the purchasing department Vendor analysis and selection of them Purchase Order preparation and follow up Receiving the material and Inspection for quality check Storage and record keeping for inventory management Invoicing and Payment
3.5.1 Purchase Indent
Indent means ?requirement of materials‘. It also means an order to export or import goods.
Purchase Indent (Purchase Requisition or Request) is a document generated by an internal organization to notify the purchasing department of items it needs to order, their quantity and the period.
An indent is raised from each department. Once this indent is approved by authorized personnel, after that it goes for purchase order. The requisition is completed ("closed") when a purchase order (PO) is issued by the organization to the external party for fulfillment. The purchase order is complete when all items have been received either in full or have been adjusted otherwise, e.g., deleted off due to the vendor's inability to supply a particular item. For example: When ABC computer wants to order stock for Hard disks, the Stores department makes a Purchase Indent to the Purchase Ordering department of ABC computers. Example of Purchase Indent:
Figure 15: Purchase Indent form
3.5.2 Vendor Analysis The idea of vendor analysis is to go beyond simply deciding on the product to be purchased. Buyers want to maximize the value of the purchase by making certain they are getting the product from the right
supplier. They want to control the total cost of obtaining and using the product, not just the immediate cost on the invoice. Vendor analysis is a formal process of evaluating potential suppliers based on selected criteria that might include not just price, but also product quality and selection, delivery, ordering, inventory and product availability, service reliability, as well as the value of the potential long-term relationship. Vendor analysis is necessary to increase the value of purchases over the long term, to save the firm time and money and to do a better job of purchasing overall. Vendor analysis is the assessment of current or prospective suppliers with respect to their: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Financial strength Business model Capacity to supply the appropriate products and services Capabilities – what it can and cannot do or provide Turnover and profit levels Markups, price list and discounts Reliability and quality Reputation Payment terms Deliveries Ability to implement a solution if services are being purchased Availability of experienced staff
Method to Rate Suppliers/Vendors: 1. Quality – for example number of not right first-time deliveries 2. Delivery schedule adherence 3. Cost/Price 4. Capability 5. Service Results of each variable are then weighted into a final score – usually a percentage, allowing suppliers to be ranked. 3.5.3 Bill of Materials (BOM) Bill of Materials (or BOM) is a list of the raw materials, sub-assemblies, intermediate assemblies, components, sub-components, parts and the quantities of each needed to manufacture an end product. No physical dimension is described in BOM. BOM is simply a very specific shopping list that tells somebody elsewhere in the company exactly what to purchase and how much. A BOM can be displayed in the following formats: 1. A single-level BOM that displays the assembly or sub-assembly with only one level of children. Thus, it displays the components directly needed to make the assembly or sub-assembly.
2. An indented BOM that displays the highest-level item closest to the left margin and the components used in that item indented more to the right Steps in BOM Design: 1. Understand what it is you are building. It is necessary to check thoroughly each phase to find the exact necessary components. 2. List the parts in your assembly. Be thorough and complete even for small things like nuts. 3. Assign part numbers to each item in your assembly. It is important to keep a database of part numbers. Avoid creating multiple part numbers for the same part. 4. Make sure each of the part numbers you will use has some specification, drawing, data sheet, etc. that allows it to be purchased or fabricated. 5. Assign item numbers to the items in a BOM. 6. List exact quantities of each item on your BOM. Be sure the quantity is consistent with the unit of measure in which an item is purchased (inch, feet, meters, ounces, etc.) 7. Make sure the BOM corresponds exactly to the assembly documentation, whether that is an assembly drawing, schematic, etc. 8. Include the assembly documentation or a link to it in the bill of materials. Assemble to order: It is a production method in which an item is assembled after receipt of a customer's order. The key items used in the assembly or finishing process are planned and usually stocked in anticipation of a customer order. Receipt of an order initiates assembly of the customized product.
3.5.4 Receipt of Material
When the material comes to warehouse from supplier, company will prepare following documents: 1. Gate inward entry This will have item details like item code, received quantity, supplier code based on Delivery Challan, etc. 2. Inspection Report This will contain the details of the items that failed the quality check. Example of Inspection Report:
Figure 16: Inspection Report
3. Material Inward register This document is prepared by Stores person with fields like Received Quantity, Quantity Accepted and Quantity Rejected. 4. Goods Receipt Note Goods Receipt Note (GRN) is a document used to record the inward entry of the any goods received at the premises of the organization. The document normally consists of the details of Quantity Received, Quantity Rejected and Quantity Accepted, Supplier Name & P.O. Number and is based on the Material Inward Register. The practice of preparing GRN‘s is important as it promotes proper inventory control and restricts the unwanted, unauthorized entry of goods in the organization. Example of Goods Receipt Note:
Figure 17: Goods Receipt Note
5. Update Stock Ledger The last step is to update stock ledger with Accepted Quantity.
3.5.5
Bin Card
(Apr 11)
Bin card is a record of receipt and issue of materials. Quantity of store received is entered with receipt column and the quantity of store issued is recorded in the issue column of Bin Card. Balance of quantity of stores is ascertained after every receipt or issue. It shows the balance of the stock at any moment of time. Bin Card is maintained by the store-keeper. He is answerable for any difference between physical store and the balance shown by the Bin Card. Thus Bin Card does not only records the receipt an issue of the stores but also assist the store keeper for control of the stock. For each item of stores minimum level
maximum level and ordering level are shown in the part of the Bin Card. By seeing the Bin Card the store-keeper sends the material requisition for the purchase of materials from time to time.
Figure 18: Structure of Bin Card
3.6 Case Study on Manufacturing / Production Planning Control System and Sales and Distribution Management System
Problem Statement:
In the Distillation Plant, distilled water is prepared, which is basically used in preparation of medicines, salines and batteries. The order is placed for test tube, vessels, flasks, coiled glass tube etc. the supplier processes the sales order and generations bill. The distillation plant pays bill and get the receipts. Suggest a suitable business process, to model the above situation and ensure a smooth flow, within the production process. To specify a business process: a) Suggest main process using any diagram. b) Suggest atleast 3 input documents in detail. c) Suggest atleast 2 report layouts in detail. 2 marks 3 marks 2 marks (Apr 12)
Approach to solve the Case Study: 1. First collect the direct stated facts: ? There is Distillation Plant where distilled water is prepared, which is in turn used in preparation of Medicines, Salines and Batteries. These are the customers for the Plant
? ? ?
Raw material for the Plant is test tube, vessels, flasks, coiled glass tube etc., which is procured from Vendors A purchase order is raised by the plant to the suppliers. They convert the PO to SO and processes the sales order and generates bill The distillation plant pays bill and get the receipts
2. Then collect the unstated facts: ? There needs improvement in order processing system ? There has to be a link between PO, SO and Invoice ? The system should also help to maintain the optimum quantity of inventory 3. Specify Business process: ? The case relates to improvement in SDMS – Order processing, Delivery and Invoice steps of Sales flow and MPPC (Capacity planning, MP, MRP and EOQ – Inventory management) business process
ENQUIRY
QUOTATION VENDOR ANALYSIS ORDER MANPOWER PLANNING, MRP, DELIVERY & INVOICE EOQ
CAPACITY PLANNING,
SALES ANALYSIS
4. Specify the input documents and data that can be used to improve the process. Draw the document formats wherever possible: ? The distillation plant must do a Vendor Analysis to choose a vendor. This is first step of process is which is done on various factors to save the firm time and money and to do a better job of purchasing overall. ? The Distillation plant must use a Purchase Order form to send the requirements to its vendors.
? ? ? ? ?
The Sales Order form must be generated by the vendors using the reference of the Purchase Order. The vendors must also send a Delivery Note along with the dispatching of the items. The vendors must raise an Invoice with necessary details which is received by the Distillation plant to pay the bills Also the calculations for the different forms of planning like capacity planning, manpower planning and MRP must be done. Example Purchase Order:
5. List output reports which can be generated from the Sales and Distribution Management System like: ? The Distillation plant should generate output report for MRP-I with data like: o What items are required? o How many for each item are required? o When are the items required? ? The Inventory reports with optimum inventory and EOQ should be also generated. ? A report to list all the Bills payable with their dates can be also generated.
3.7 Exercise
Answer in brief (1-2 lines): 18. Give any two objectives of Material Requirement planning. (Oct 11) (Refer 3.3.1) 19. Define Direct Material. (Oct 11) (Refer 3.4.7) 20. What is lead time? (Oct 11, Apr 12) (Refer ) 21. Define Indirect material. (Apr 11) (Refer 3.4.7) 22. Define Bill of material. (Apr 11) (Refer 3.5.3) 23. Write the formula to calculate EOQ in inventory control. (Apr 11) (Refer 3.4.8) 24. What do you mean by EOQ? (Apr 12) (Refer 3.4.8) 25. Define Capacity planning. (Refer 3.2.1) 26. What is manpower planning? (Refer 3.2.2) 27. Define purchase indent. (Refer 3.5.1) 28. What is routing. (Refer 3.4) 1 mark
Write Short Notes: 8. Draw the structure of Bin Card. (Apr 11) (Refer 3.5.5) 9. Explain the advantages of MRP. (Refer 3.3.5) 10. Goods Receipt Note. (Refer 3.5.4)
3 marks
Answer the following in detail: 5 marks 1. Define production planning. Explain the functions of the production planning and control. Explain the extent of production planning and control with diagram. (Refer 3.4) 2. What is capacity requirement? Differentiate between Long and Short term capacity strategy. (Refer 3.2.1) 3. What are the inputs to MRP? What are the outputs to MRP? (Apr 12) (Refer 3.3.2 & 3.3.3) 4. Write a note on MRP-I. (Refer 3.3) 5. Explain in brief MRP-II. (Refer 3.3.4) 6. Explain functions of Manpower Planning. (Oct 11) (Refer 3.2.2) 7. Explain work order management. (Refer 3.4.5) 8. Write a note on Economic Order Quantity (EOQ). (Refer 3.4.8) 9. What is Bill of Materials? (Refer 3.5.3) 10. Explain the process of material procurement. (Refer 3.5) 11. Explain the objectives of Material Requirement Planning. (Apr 11) (Refer 3.3.1) 12. Explain process of purchase indent with an example. (Refer 3.5.1) 13. What is significance of vendor analysis? (Refer 3.5.2) 14. The annual demand for the product is 5800 units. The unit cost is 6/- Rs and inventory carrying cost per unit per annum is 15 % of the average inventory cost. If the cost of Procurement is Rs. 65, Determine: EOQ, Number of orders per annum, Total cost of purchasing. (Refer 3.4.8)
Case Study on Manufacturing / Production Planning Control System: The purchase department of ?Fibre optics ltd? handles purchase requests from other departments in the company. People in the company who initiate the original purchase request are the "customers" of the purchasing department. A person working within the purchasing department receives that request and monitors it until it is ordered and received. It has been found that the materials being purchased are not up to the quality, specifically in case of high-valued materials (materials worth around Rs 10,000 & worth).There are lot of complaints regarding the quality of these high valued, from the consuming departments. There seems to be something wrong in the purchase process, for these materials. 1. Suggest a suitable business process, to model the above situation. 2 marks 2. Specify the different input documents (detailed documents) that are necessary for your specified business process. 3 marks 3. Also, suggest any supporting reports that can be obtained from your specified business process. 2 marks
4
BANKING
Objective: In the contemporary times, Banking is evolving regularly to move towards embracing technology in form of ATM, E-Banking, Biometric devices, etc. The objective of this chapter is to understand the basic concepts of banking and simple transactions and also get introduced to the usage of technology in Banking.
4.1 Basics of Banking
A bank is a financial institution accepting deposits of money from the public for purpose of lending or investment, repayable on demand and withdrawal by cash, cheque, draft, order, etc. Banks have following Customer Segments ? ? ? ? Personal banking SME/Commercial banking Corporate & Investment banking Private banking
Benefits for Customer ? ? ? ? ? Encourages customers to cultivate the ?savings‘ habit High level of liquidity Convenience – available 24 hours a day, 7 days a week Offers a range of products to suit needs of individual customers Safety/Security
Benefits for Bank ? ? ? Good source of low cost funds Large customer base - volume driven business Diversification of risk to a larger pool and variety of clientele Cross selling is more prevalent in Personal Banking than any other stream
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4.1.1 Relationship - Bank and Customer There can be number of relationships between bank and customer depending on situation:
? ? ? Debtor & Creditor: Customer deposits money with bank hence he becomes a Lender or Creditor of the bank. Bank has accepted deposit from customer hence bank becomes a Debtor. Pledger and Pledgee: When customer pledges (promises) certain assets or security with the bank in order to get a loan, the customer becomes the Pledger and the bank becomes the Pledgee. Bailor & Bailee: Banks acts as a caretaker for valuables & securities in the safe custody, in this case, customer becomes the Bailor and the bank becomes the Bailee.
? ? ? ?
Trustee& Beneficiary: When the Bank holds property for the beneficiary, it becomes Trustee for the Beneficiary. Agent & Principal: Bank acts as Agent of customer, provides agency services to customer and is responsible for carrying out customer‘s instruction. Lessee and Lessor: Bank acts as a Lessor when it rents out space (e.g. locker) to customer who is a Lessee. Advisor and Client: When a customer invests in securities, on advice from the bank, the banker acts as an Advisor and the customer as a Client.
4.1.2 Products and Services
Products Liability Products Demand Deposits Current Accounts Saving Accounts Time Deposits Fixed Deposits Recurring Deposits Cluster Deposits Asset Products Loan Products Home Loans Vehicle Loans Asset Loans Personal Loans Securities Loans Card Products Charge Cards Credit Cards Transaction Services Banking Related Pay Orders Demand Drafts Money Transfer Electronic Clearing Standing Instruction Foreign Exchange Travelers Cheque Forex Other Products/Services Investments Securities Trading Wealth Management Mutual Funds Custody Services Insurance Life Insurance Asset Insurance Medical Insurance
4.2 Savings Bank Account
Saving Bank Account is meant to promote the habit of saving among the citizens while allowing them to use their funds when required. The main advantage of Savings Bank Account is its high liquidity and safety. Additionally, Savings Bank Accounts earn moderate interest too. The rate of interest was earlier decided and periodically reviewed by the Government of India. Presently, the rate of interest is decided by the banks themselves. (Apr 12)
4.2.1 Opening an Account Savings Bank Account can be opened in the name of an individual or in joint names of the depositors. Savings Bank Accounts can also be opened and operated by the minors provided they have completed ten years of age. Minors‘ Account can also be opened by their natural guardians either jointly with the minor or singly or by guardians appointed by a competent court Accounts by Hindu Undivided Families (HUF) not engaged in any trading or business activity can be opened in the name of the Karta of the HUF. Savings accounts are opened at the discretion of the bank for persons who comply with the Know Your Customer (KYC) norms. Illiterate persons/blind persons may also open savings accounts provided they are properly introduced and other formalities for opening accounts of such persons are duly observed. The minimum balance to be maintained in an ordinary savings bank account varies from bank to bank. It is less in case of public sector banks and comparatively higher in case of private banks. In most of the public sector banks, minimum balance to be maintained is Rs. 100. In accounts where cheque books are issued, generally a minimum balance of Rs. 500/- has to be maintained. 4.2.2 Nominee (Oct 11) Nomination is the process of appointing a person to take care of your assets in the event of your death. You can appoint a nominee for your bank account, fixed deposit, demat account or even your house. A nominee can be a family member, a friend or any other person whom you trust. You need to choose a nominee with care as the person needs to be reliable enough to take care of your assets in the event of your death. Therefore, when you open a savings bank account, there is a space, which asks for the nominee details. 4.2.3 Things to Consider While Opening a Savings Account (Apr 11) 1. 2. 3. 4. 5. 6. It is advisable to seek the following information from bank before opening the account: Minimum balance requirements Penal provisions in case the balance falls below the minimum stipulated amount Penalty in case of return of cheques issued or instruments sent on collection Collection facilities etc. offered and charges applicable. Details of charges, if any for issue of cheque books and limits fixed on number of withdrawals, cash drawings, etc.
4.2.4 General Document Required (KYC Norms) 1. Two passport size photographs 2. Proof of residence i.e. Passport/driving license/Gas / Telephone / Electricity Bill/ Ration card/voters identity card 3. An introduction of the person from an existing account holder 4. PAN number / Declaration in form no.60 or 61 as per the Income Tax Act 1961 4.2.5 Closing of Account 1. If a depositor closes the account within 12 months of opening it, a small charge will generally be made
2. The Bank reserves the right to close any account without previous intimation if in the Bank's opinion it is not operated upon satisfactorily or for any other reason whatsoever 3. All remaining cheque books and passbooks should be submitted with a letter of closing 4.2.6 Account Transfer Savings accounts may be transferred from one office of the bank to another office in India, free of charge on a written request from the depositor and on return of the unused cheque leaves, if any, along with the passbook. 4.3 Cheques
1. A cheque is a written instruction you give to your banker to make payment by debit to your account on demand 2. Cheque is a valid payment instrument from the date shown on the face of it. By banking practice three months is treated as normal validity of a cheque 3. A Bearer cheque is payable to the holder. An Order cheque is payable to the person on whose favour it is drawn or subsequent endorsees. So banks seek identification of the person receiving payment of an order cheque 4. Banks verify the signature on the cheque with the account holder's specimen signature on record before making payment 5. Report loss of cheque to the issuing bank immediately and give Stop Payment instruction to them 6. Cheques should not be issued without adequate balance in the account or arrangements to pay. Dishonor of cheque for insufficiency of funds or exceeding amount arranged to be paid, is a criminal offence punishable with imprisonment for a period up to one year or with fine, which may extend to twice the amount of the cheque
4.4 Transactions
4.4.1 Deposits Amounts received for the credit of a savings account should ordinarily be accompanied by pay-in-slips with counterfoils, which will be supplied by the bank, free of charge, on request. Pay-in-slips should be made out separately for each of the following items: 1. 2. 3. 4. 5. Cash Cheques and other instruments drawn on the branch Cheques and other instruments drawn on local branches of Indian Bank Cheques drawn on outstation branches of Indian Bank or any other Bank and Cheques and other instruments drawn on local branches of other banks
Cheques and Dividend Warrants can also be used as Deposit instruments. 4.4.2 Withdrawals Drawings from savings bank account will be by withdrawal forms or cheques supplied by the bank.
Where a withdrawal is made by means of a withdrawal slip through a third party authorized by the account holder, the account holder should sign his name on the reverse of the withdrawal form naming the authorized person to whom the payment is to be made and also authenticate the signature of the person receiving payment on his behalf. The authorized person receiving the cash will affix his signature on the reverse of the withdrawal form. Normally no money can be withdrawn from a savings account operated by withdrawal slips without the production of the passbook. Withdrawal by cheques in cheque-operated accounts may be made only on cheque leaves supplied by the bank to the depositor. The use of withdrawal slips is restricted to Rs.10000/- for cash transactions and Rs.20000/- for transfer transactions.
4.5 ATM Application
An Automated Teller Machine (ATM), also known as Automated Banking Machine (ABM) or Cash Machine or All Time Money (in India), is a computerized telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. (Apr 12) 4.5.1 Features 1. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip; that contains a unique card number and some security information such as an expiration date or CVV 2. Authentication is provided by the customer entering a personal identification number (PIN) 3. Using an ATM, customers can access their bank accounts in order to make cash withdrawals or deposits, balance enquiry, transfers, pay bills, order cheque books, purchase prepaid cell phone credit, deposit Cheques etc. Modern ATM‘s provide most functionality which the bank offers to the customers 4. If the currency being withdrawn from the ATM is different from that which the bank account is denominated in (e.g. Withdrawing Japanese Yen from a bank account containing US Dollars), the money will be converted at a wholesale exchange rate. Thus, ATMs often provide the best possible exchange rate for foreign travelers and are heavily used for this purpose as well 4.5.2 Construction An ATM is typically made up of the following devices: 1. 2. 3. 4. 5. CPU (to control the user interface and transaction devices) Magnetic and/or Chip card reader (to identify the customer) Secure crypto processor, generally within a secure enclosure Display (used by the customer for performing the transaction) Function key buttons (usually close to the display) or a Touchscreen (used to select the various aspects of the transaction)
6. Record Printer (to provide the customer with a record of their transaction) 7. Vault (to store the parts of the machinery requiring restricted access) 8. Housing (for aesthetics and to attach signage to)
Figure 19: ATM machine
Mechanisms found inside the vault may include: 1. Dispensing mechanism (to provide cash or other items of value) 2. Deposit mechanism including a Cheque Processing Module and Bulk Note Acceptor (to allow the customer to make deposits) 3. Security sensors (Magnetic, Thermal, Seismic, Gas) 4. Locks: (to ensure controlled access to the contents of the vault) 5. Journaling systems (a sealed flash memory device based on proprietary standards) or a solid-state device (an actual printer) which accrues all records of activity including access timestamps, number of bills dispensed, etc. This is considered sensitive data and is secured in similar fashion to the cash as it is a similar liability 4.5.3 Advantages (Apr 11) 1. Usage ? ? ? ?
Easy to use Available 24X7 Quick and efficient Anywhere banking
? Cross banking facility ? No need to carry cash always or depend on bank timings 2. Alternative uses ? Deposit currency recognition, acceptance and recycling ? Pay routine bills, fees, taxes (utilities, phone bills, social security, legal fees, taxes, etc.) ? Printing bank statements ? Updating passbooks ? Loading monetary value into stored value cards ? Purchasing postage stamps, lottery tickets, Train tickets, ? Cheque Processing ? Adding pre-paid cell phone / mobile phone credit 4.5.4 Reliability and Security measures 1. Reliability: Before an ATM is placed in a public place, it typically has undergone extensive testing with both test money and the backend computer systems that allow it to perform transactions. Banking customers also have come to expect high reliability in their ATMs. 2. Fraud: As with any device containing objects of value, ATMs and the systems they depend on to function are the targets of fraud. Fraud against ATMs and people's attempts to use them takes several forms. 3. Physical security: A common theft method is to simply rob the staff filling the machine with money. To avoid this, the schedule for filling them is kept secret, varying and random. The money is often kept in cassettes, which will dye the money if incorrectly opened. 4. Customer identity integrity: There have also been a number of incidents of fraud by man-in-themiddle attacks, where criminals have attached fake keypads or card readers to existing machines. These have then been used to record customers' PINs and bank card information in order to gain unauthorized access to their accounts. Various ATM manufacturers have put in place countermeasures to protect the equipment they manufacture from these threats 5. Device operation integrity: Openings on the customer-side of ATMs are often covered by mechanical shutters to prevent tampering with the mechanisms when they are not in use. Alarm sensors are placed inside the ATM and in ATM servicing areas to alert their operators when doors have been opened by unauthorized personnel. 6. Customer security: Multiple security cameras and security guards are a common feature.
4.6 Online banking (E-banking or Internet banking)
Online banking or E-banking allows customers to conduct financial transactions on a secure website. 4.6.1 Advantages of Online Banking 1. Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a bill, wire transfer and applications like applying for a loan, new account, etc.) ? Electronic Bill Presentment and Payment (EBPP) ? Funds transfer between a customer's own checking and savings accounts or to another customer's account
Investment purchase or sale ? Loan applications and transactions, such as repayments of enrollments 2. Non-transactional (e.g., online statements, check links, browsing, chat) ? Bank statements 3. Financial Institution Administration ? Support of multiple users having varying levels of authority ? Transaction approval process ? Wire transfer 4.6.2 Security features Protection through single password authentication is not considered secure enough for personal online banking applications. So generally, there exist two different security methods for online banking. The PIN/OTP system where the PIN represents a password, used for the login and OTP represents onetime passwords to authenticate transactions. Digital certificates are used against phishing and pharming. In addition, the use of class-3 card readers is a measure to avoid manipulation of transactions by the software in signature based online banking variants. To protect their systems against Trojan horses, users should use virus scanners and be careful with downloaded software or e-mail attachments. 4.6.3 Types of Internet Banking Products (Services) (Apr 11, Oct 11) Internet banking products in India into three types based on the levels of access granted: 1. Information Only System: General-purpose information like interest rates, branch location, bank products and their features, loan and deposit calculations are provided in the banks website. There exist facilities for downloading various types of application forms. The communication is normally done through e-mail. There is no interaction between the customer and bank's application system. No identification of the customer is done. In this system, there is no possibility of any unauthorized person getting into production systems of the bank through internet. 2. Electronic Information Transfer System: The system provides customer- specific information in the form of account balances, transaction details and statement of accounts. The information is still largely of the ?read only‘ format. Identification and authentication of the customer is through password. The information is fetched from the bank's application system either in batch mode or offline. The application systems cannot directly access through the internet. 3. Fully Electronic Transactional System: This system allows bi-directional capabilities. Transactions can be submitted by the customer for online update. This system requires high degree of security and control. In this environment, web server and application systems are linked over secure infrastructure. It comprises technology covering computerization, networking and security, inter-bank payment gateway and legal infrastructure.
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4.7 Biometric Devices and its scope in Applications
The term biometrics is widely known as ?the science of measuring physical characteristics, to verify a person‘s identity which includes voice recognition, iris and face scans and fingerprint recognition.? Biometric characteristics can be divided in two main classes: 1. Physiological those are related to the shape of the body. Examples include, but are not limited to: ? Fingerprint ? Face recognition ? DNA ? Palm print ? Hand geometry ? Iris recognition, which has largely replaced retina ? Odour/Scent 2. Behavioral those are related to the behavior of a person. Examples include, but are not limited to: ? Typing rhythm ? Gait ? Voice 4.7.1 Types of Applications (Biometric devices) (Oct 11) 1. Fingerprint biometrics: They are probably the most common form of biometrics available today. By having an individual scan their fingerprint electronically to decode information, the transmitter of the data can be certain that the intended recipient is the receiver of the data. When scanned electronically, fingerprints provide a higher level of detail and accuracy can be achieved over manual systems. Some other strengths associated with fingerprint biometrics are that giving fingerprints is more widely accepted, convenient and reliable than other forms of physical identification, especially when using technology. 2. Hand Geometry: Closely associated with fingerprint biometrics is another biometric that registers the imprint left by the palm of the hand. These types of scanners measure the geometry of the hand rather than the fine skin patterns as found in the fingertip. Hand scanners have been used in apartment buildings, nurseries, etc. to control access to restricted areas. These units are more commonly found in areas where dirt or debris on hands may make fingerprint identification difficult such as on shop floors in manufacturing plants. Although palm print scanners nearly match fingerprint scanners in reliability, the units are much larger in size and cost than fingerprint scanners. 3. Retina/Iris Scanners: There are two common types of optical biometrics; retinas and irises. Retinal and iris biometric devices are more accurate than fingerprint and hand biometric devices because both the retina and iris have more characteristics to identify and match than those found on the hand. The error rate for the typical retina or iris scanner is about one in two million attempts, which further demonstrates the reliability of this technology. Two drawbacks to these devices however are that they have difficulty reading images of those people who are blind or have cataracts and that they sometimes cumbersome to use. 4. Facial Scan: Facial biometrics can function either from short distances or over greater distances. This form of biometric however are often less reliable then more common forms such as fingerprints and
iris scans. The interpretative functions the computer must perform to find a match is much more subjective using this technology. An image is examined for overall facial structure, which works well over short distances but progressively loses accuracy the greater the distance between the individual and the scanner. Changes in lighting can also increase the error rate in these devices. This type of technology is in place in several airport terminals and at many border crossings to help determine the identities of individuals at a distance who may be involved in criminal activities without alerting the individual that they are being monitored. 5. Voice recognition: There are several distinct advantages that voice recognition has for use in encryption technology. Not only are voice biometrics perfect for telecommunication applications, most of the modern personal computers already possess the necessary hardware to utilize the applications. Therefore, for fewer budgets individuals can possess the technology needed to have reliable biometric encryption technology for use over the Internet. The error rate for this type of biometric is not as accurate, however, as some other forms. The error rate for this type of technology ranges between two and five percent, however it lends itself well for voice verification over the public telephone system and is more secure than PINs. Some drawbacks to this technology are that voiceprints can vary over the course of the day and one‘s health, such as a cold or laryngitis, can affect verification of the user by the system. 4.7.2 Need (Importance) for Biometrics (Apr 11, Apr 12) 1. Biometrics identifies a person via a unique human characteristic: the size and shape of a hand, a fingerprint, one‘s face or several aspects of the eye. If the goal of an access control system is to control where people, not credentials, can and cannot go, then only a biometric device truly provides this capability to the end user. 2. As a result, biometrics is used on the front doors of thousands of businesses around the world, at the doors to the tarmacs of major airports and at the entrances of other facilities where the combination of security and convenience are desired. 3. Biometric hand readers control client and employee access to special areas of banks, prisons, universities, hospitals, International airports, etc. 4. India is undertaking an ambitious mega project (the Multipurpose National Identity Card) to provide a unique identification number to each of its 1.25 billion people. The Identification number will be stored in a central databases; consisting the biometric information of the individual. Once implemented, this would be the biggest implementation of the biometrics in the world. 4.7.3 Usage Methodology 1. The first time an individual uses a biometric system is called an enrolment. During the enrolment, biometric information from an individual is stored. In subsequent uses, biometric information is detected and compared with the information stored at the time of enrolment. 2. The sensor is the interface between the real world and the system; it has to acquire all the necessary data. Most of the times it is an image acquisition system, but it can change according to the characteristics desired. 3. The processor removes artifact from the sensor, to enhance the input (e.g. removing background noise), to use some kind of normalization, etc.
4. Next, the necessary features are extracted. A vector of numbers or an image with particular properties is used to create a template. A template is a synthesis of the relevant characteristics extracted from the source. Elements of the biometric measurement that are not used in the comparison algorithm are discarded in the template to reduce the file size and to protect the identity of the enrollee. 4.7.4 Advantages (Oct 11) 1. The goal of any access control system is to let authorized people, not just their credentials, into specific places. Only with the use of a biometric device can this goal be achieved. 2. A card-based access system will control the access of authorized pieces of plastic, but not who is in possession of the card. 3. Systems using PINs require an individual only know a specific number to gain entry; but who actually entered the code cannot be determined. On the contrary, biometric devices verify who people are by what they are, whether by hand, eye, fingerprint or voice recognition. 4. Biometric reductions in errors have lowered the capital costs of ID cards in recent years and the true benefit of eliminating them is realized through reduced administrative efforts. For example, a lost card must be replaced and reissued by someone. Just as there is a price associated with the time spent to complete this seemingly simple task, when added together, the overall administration of a card system is costly. 5. Contrary to using badges, sign-ins or other ways of tracking employees, a biometric time clock assures that no employee can punch in for another, eliminating time fraud and reducing payroll costs. Because every person‘s biometric characteristic (hand, fingerprint, eyes, face, etc.) is unique, a biometric time clock provides a quick, accurate and reliable way to record in- and out-punches for each employee. That is why so many companies now employ biometrics.
4.8 Exercise
Answer in brief (1-2 lines): 1 mark 1. Define ATM. (Apr 12) (Refer 4.5) 2. Define Biometrics. (Refer 4.7) 3. What is E-banking? (Refer 4.6) 4. What is mean by nominee? (Oct 11) (Refer 4.2.2) 5. State any two benefits of ATM in banks. (Apr 11) (Refer 4.5.3) 6. Give any two things to be considered while opening a savings account. (Apr 11) (Refer 4.2.1) 7. State any two use of Biometric. (Apr 12) (Refer 4.7.2) 8. What is saving account?(Apr 12) (Refer 4.2)
Write Short Notes: 1. Hand Geometry (Refer 4.7.1) 2. Iris scan (Refer 4.7.1) 3. Retina scan (Refer 4.7.1)
3 marks
4. 5. 6. 7. 8. 9. 10.
Face recognition (Refer 4.7.1) Voice recognition (Refer 4.7.1) Biometric devices (Refer 4.7.1) Cheques (Refer 4.3) ATM (Refer 4.5) Online banking (Refer 4.6) Explain any three services provided through E-banking.(Apr 11) (Refer 4.6.3) 5 marks
Answer the following in detail:
1. What is saving account? List the steps of open saving account. (Refer 4.2 & 4.2.1) 2. What are the documents required to open Saving Accounts in the bank? (Refer 4.2.4) 3. What are the advantages of ATM to customer? State any two benefits of ATM to banks. (Refer
4.5.3)
What are the merits and demerits of E-banking? (Refer 4.6.1) Why is the need of Biometric? Which devices are used for Biometric? (Refer 4.7.1) Discuss benefits of E-banking to banking industry. (Refer 4.6.1) Describe the different Relationships between Bank and Customer. (Refer 4.1.1) Explain the different types of transactions in a Bank. (Refer 4.1.2) What is E-banking? Explain 3 types of internet banking products based on levels of access granted. (Oct 11) (Refer 4.6.3) 10. List any four biometric devices and give benefits of biometric supported ATM. (Oct 11) (Refer 4. 5. 6. 7. 8. 9.
4.7.4)
11. Write the importance of biometric devices. (Apr 11) (Refer 4.7.2) 12. Write a short note on E-Banking. (Apr 12) (Refer 4.6)
5
ADVANCED BUSINESS SYSTEMS
Objective: Different businesses use various types of Advanced Business Systems to improve the efficiency and effectiveness. The objective of this chapter is to understand basics of systems like Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Supply Chain Management (SCM), BPO, KPO, etc. We will also learn the concepts of International Business Management and Total Quality Management.
5.1 Enterprise Resource Planning (ERP)
ERP systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, etc. ERP systems automate this activity with an integrated software application. Its purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders. ERP can be defined as a process or approach that attempts to consolidate all of a company's departments and functions into a single computer system that services each department's specific needs. (Oct 11) Most companies have a conglomeration of different systems and procedures (as well as hardware and software) designed 'specifically' for their own needs such as: ? ? ? ? ? Employee records (including payroll, medical and other benefits) are held by Human Resources Financial data and processing, which includes payroll computations and employee compensation as well as invoicing and billing for company products and services, are held by the Finance Department Production data is held by Manufacturing Inventories are held by Warehousing Customer orders are held by Customer Relations
ERP systems are cross-functional and enterprise-wide. All functional departments that are involved in operations or production are integrated in one system.
The most often-cited example of an ERP software is customer ordering and delivery where a customer's order moves smoothly from Sales, where the 'deal' is consummated, to Inventory and Warehousing, which retrieves and packages the order for delivery, to Finance, where invoicing, billing and payments are handled and on to Manufacturing, where replacement of the bought-and-paid-for product is done. 5.1.1 Scope of ERP ERP covers a wide range of business and typically, it fulfills all the business demand. For customizing ERP completely, the users have to make some changes in the implemented service package. Here is a list of most of the services where ERP is vastly in use:
1. Production Department: Engineering, Bills of Material, Scheduling, Capacity, Workflow Management, Quality Control, Cost Management, Manufacturing Process, Manufacturing Projects, Manufacturing Flow 2. Supply Chain Management: Inventory, Order Entry, Purchasing, Product Configurator, Supply Chain Planning, Supplier Scheduling, Inspection of goods, Claim Processing, Commission Calculation 3. Financials: General Ledger, Cash Management, Accounts Payable, Accounts Receivable, Fixed Assets 4. Projects: Costing, Billing, Time and Expense, Activity Management 5. Human Resources: Human Resources, Payroll, Training, Time & Attendance, Benefits 6. Customer Relationship Management: Sales and Marketing, Commissions, Service, Customer Contact and Call Centre support 5.1.2 ERP Evaluation The selecting of Enterprise Resource Planning package is a herculean task. When selecting the ERP solution you must make sure that the package is a good fit for your organization. An ERP package should provide an organization with a solid foundation, incorporating all of the fundamental aspects of running a business. Expectations run high when an organization deploys an ERP package. If the solution is a good fit for the company, the company stands to gain tremendous cost savings and service improvements across the enterprise. Every industry has industry-specific requirements. The ability of ERP vendors to handle these requirements should be carefully evaluated because they can be a major differentiator in your selection process. You should evaluate both general ERP vendors as well as industry-specific vendors. Industry-specific vendors are very functionally focused and already understand many of the issues you need to resolve. 5.1.3 No 01 Package ERP Solution Vs Custom Development ERP Solution Custom Development Packaged ERP Definition: Custom software (also known as bespoke software) is a type of software that is developed either for a specific organization or function that differs from other already available software (also called off-the-shelf software). Definition: Is actually a process or approach that attempts to consolidate all of a company's departments and functions into a single computer system that services each department's specific needs. It is, in a sense, a convergence of people, hardware and software into an efficient production, service and delivery system that creates profit for the company.
02
Scope: It is generally not targeted to the mass Scope: ERP packages are made for mass market market, but usually created for companies, and only need to be implemented as per company business entities and organizations. choice of needs and models. Budget: Custom software also refers to when companies or governments pay for customized software for budget or project managing. Budget: These are planned for long term and are budgeted as a part of company maintenance. Cost: Cost is one time for installation and implementation. Later it varies as per contract,
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Cost: Is one time or as per contract. Generally upgrades and rollouts. low cost as compared. 04 Maintenance: Custom software being targeted to certain audiences, have to be frequently updated and the cost of updating is calculated as per the requested modification. Maintenance: ERP packages are targeted to wide audiences, so any global change in the industry is taken care by the ERP company by releasing patches for corrections. Cost of maintenance is generally high and contract based.
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Up gradation: In case of up gradation, it is Up gradation: Is easy and cost effective, without very difficult or nearly impossible, rather a buying the initial software. new version has to be purchased. Custom Reports: Generally, the company Custom Reports: These are generally open that supplies the custom software has the source codes and maintenance can be done in authority and access to backend data. So house with proper programming knowledge. custom reports is a part of the contract. Technical: They are designed as per specified Technical: These are generally designed to run on hardware or Operating Systems. multi-OS, hardware and system landscapes. Examples of bespoke software include Examples: SAP, Oracle, PeopleSoft, JD Edwards, products for commercial and governments BAAN etc. such as: Inventory Management, Customer Management, Employee Management Modules of ERP
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5.1.4
(Oct 11)
ERP finance module ? ? ? All kind of organizations small scale, large-scale organizations benefit from the implementation of ERP financial module. The financial module is the core of many ERP software systems. It can gather financial data from various functional departments and generates valuable financial reports such general ledger, trail balance, as balance sheet and quarterly financial statements.
ERP HR (Human Resources) Module ? ? HR module streamlines the management of human resources and human capitals. HR modules routinely maintain a complete employee database including contact information, salary details, attendance, performance evaluation and promotion of all employees. Advanced HR module is integrated with knowledge management systems to optimally utilize the expertise of all employees.
ERP Production Module
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In the process of evolution of Manufacturing Requirements Planning (MRP) II into ERP, while vendors have developed more robust software for production planning, consulting firms have accumulated vast knowledge of implementing production planning module. Production planning optimizes the utilization of manufacturing capacity, parts, components and material resources using historical production data and sales forecasting.
ERP Purchasing Module ? ? ? ? Purchase module streamlines procurement of required raw materials. It automates the processes of identifying potential suppliers, negotiating price, awarding purchase order to the supplier and billing processes. Purchase module is tightly integrated with the inventory control and production planning modules. Purchasing module is often integrated with supply chain management software.
ERP Inventory Module ? ? Inventory module facilitates processes of maintaining the appropriate level of stock in a warehouse. The activities of inventory control involves in identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances and reporting inventory status. Integration of inventory control module with sales, purchase, finance modules allows ERP systems to generate vigilant executive level reports.
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ERP Sales and Marketing Module ? ? ? ? Sales module implements functions of order placement, order scheduling, shipping and invoicing. Sales module is closely integrated with organizations' ecommerce websites. Many ERP vendors offer online storefront as part of the sales module. ERP marketing module along with CRM supports lead generation, direct mailing campaign and other marketing works. Advantages of ERP (Apr 11, Apr 12) Installing an ERP system has many advantages - both direct and indirect. The direct advantages include improved efficiency information integration for better decision-making, faster response time to customer queries, etc. The indirect benefits include better corporate image, improved customer goodwill, customer satisfaction and so on. Some of the benefits are quantitative (tangible) while others are non-quantitative (intangible). Tangible benefits are those measured in monetary terms and intangible benefits cannot be measured in monetary terms but they do have a very significant business impact. Tangible benefits: 1. Improves the productivity of process and personnel 2. Lowering the cost of products and services purchased
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Paper and postage cost reductions Inventory reduction Lead time reduction Reduced stock obsolescence Faster product / service look-up and ordering saving time and money Automated ordering and payment, lowering payment processing and paper costs
Intangible benefits: 1. 2. 3. 4. 5. 6. 7. 8. Increases organizational transparency and responsibility Accurate and faster access to data for timely decisions Can reach more vendors, producing more competitive bids Improved customer response Saves enormous time and effort in data entry More controls thereby lowering the risk of misutilization of resources Facilitates strategic planning Uniform reporting according to global standards
5.2 Supply Chain Management (SCM)
Supply chain management spans all movement and storage of raw materials, work-in-process inventory and finished goods from point of origin to point of consumption. Supply chain execution means managing and coordinating the movement of materials, information and funds across the supply chain. The flow is bi-directional. Supply chain management is a cross-function approach including managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods and the movement of finished goods out of the organization and toward the end-consumer. Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become known. The marketing department, responding to customer demand, communicates with several distributors and retailers as it attempts to determine ways to satisfy this demand. Information shared between supply chain partners can only be fully leveraged through process integration. (Apr 11) There are two areas of supply chain management: ? ? Inbound SCM: Related to purchasing and suppliers Outbound SCM: Related to sales and customers
Supply chain management must address the following problems:
1. Distribution Network Configuration: Number, location and network of suppliers, production facilities, distribution centres, warehouses and customers. 2. Distribution Strategy: Operating control (centralized, decentralized or shared), delivery scheme. 3. Trade-Offs in Logistical Activities: All activities must be well coordinated in order to achieve the lowest total logistics cost. Trade-offs may increase the total cost if only one of the activities is optimized. For example, full truckload rates are more economical on a cost per pallet basis than less than truckload shipments. If, however, a full truckload of a product is ordered to reduce transportation costs, there will be an increase in inventory holding costs that may increase total logistics costs. It is therefore imperative to take a systems approach when planning logistical activities. These trade-offs are key to developing the most efficient and effective logistics and SCM strategy. 4. Information: Integration of processes through the supply chain to share valuable information, including demand signals, forecasts, inventory, transportation, etc. 5. Inventory Management: Quantity and location of inventory, including raw materials, work-inprogress (WIP) and finished goods. 6. Cash Flow: Arranging the payment terms and methodologies for exchanging funds across entities within the supply chain.
5.2.1 Advantages of SCM 1. Increased coordination between suppliers, distributors and partners 2. Enhanced customer relationship 3. Reduced cost of operation Examples: ? For a company in medical services that distributes medical and surgical supplies to medical practitioners and home health care industry, a SCM system will coordinate with the manufacturers of the medical suppliers, the retailers and the logistical department of major hospitals. By keeping tracking of the usage patterns, the SCM system will be able to forecast the demand of medical/surgical products by seasons, by regions and by customer types. This will save the inventory cost for the medical service company and major hospitals that order the medical supplies. For large retailers like supermarkets, they have many regional distribution centres; a SCM system will effectively coordinate between suppliers of clothes, paper products and retail stores to reduce the inventory cost. The retail store chain will be able to pass the saving of inventory cost to customers and offer lower prices for many everyday products. The backbone of many service operations are Supply Chain Management or SCM.
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5.3 Customer Relationship Management (CRM)
CRM is a process or methodology used to learn more about customers' needs and behaviors in order to develop stronger relationships with them. CRM is as a process that will help bring together lot of pieces of information about customers, sales, marketing effectiveness, responsiveness and market trends.
CRM helps businesses use technology and human resources to gain insight into the behavior of customers and the value of those customers. 5.3.1 Need (Scope) of CRM 1. It involves using technology to organize, automate and synchronize business processes—principally sales activities, but also those for marketing, customer service and technical support. 2. The overall goals are to find, attract and win new clients, nurture and retain those the company already has, entice former clients back into the fold and reduce the costs of marketing and client service. 3. CRM systems for marketing help the enterprise identify and target potential clients and generate leads for the sales team. 4. A key marketing capability is tracking and measuring multichannel campaigns, including email, search, social media, telephone and direct mail. Metrics monitored include clicks, responses, leads, deals and revenue. 5. In a web-focused marketing CRM solution, organizations create and track specific web activities that help develop the client relationship. These activities may include such activities as free downloads, online video content and online web presentations 5.3.2 CRM Process and its Importance 1. The first step is to establish CRM goals. This would go into your business plan at the startup of your company. 2. This means figuring out who your target audience is and how you are going to draw them into your business. There could already be a multitude of stores offering pretty much the same thing. The only way to make your business a success then is by making people realize why they should come to you over those other stores. 3. The next step in the CRM process is to educate other departments. 4. Assemble all required customer information, design the data model, vendor study and select the right CRM solution. 5. After this, you establish authority and responsibility. This depends on the size of your business and all the people involved with it. 6. Communicate with customers. This is one of the most important things to remember. It can be hard to always keep up with all your customers and potential customers, especially with the rest of the tasks you need to focus on to run your business but this step must not be neglected. Communicating with customers is a CRM best practice. This practice is how you show them you appreciate their business and build relationships. 7. Customer surveys can help keep track of your customers and what they are interested in and the same goes for customer satisfaction programs. These help you to realize certain areas you may need to work on. Always get feedback from your customers. 5.3.3 CRM Benefits
(Apr 11)
1. Retaining customers - enabled by excellent customer service 2. Enables easier growth, indirectly and directly, for example by sustaining healthier volumes and margins and by business expansion from word-of-mouth referrals
3. High levels of customer retention via effective customer service also improves staff morale and motivation 4. Improved staff morale and motivation resulting from reducing customer attrition also positively benefits staff retention and turnover, recruitment quality and costs, stress, grievance, discipline and counseling pressures 5. Retaining customers also enables the whole organization - especially middle managers to focus more on proactive opportunities (growth, innovation, development, etc.) rather than reactive firefighting, crisis management, failure analysis and the negative high pressures to win replacement business. 6. Having a culture of delighting and retaining customers fuels positive publicity and reputation in the media and increasingly on the web in blogs and forums, etc.
5.4 Call Centre
A call centre is an office where a company's inbound calls are received or outbound calls are made. Call centres are increasingly popular in today's society, where many companies have centralized customer service and support functions. 5.4.1 Call Centre Features Call centres employ many staff in customer service, sales and support functions. Call centres are often large offices staffed with representatives who either make or receive phone calls. ? ? ? ? Depending on the needs of the company, call centres can make either incoming or outgoing calls. Incoming calls: To discuss problems, concerns about the services or products. E.g. Queries on Credit cards, services to domestic appliances, service providers facilities – mobile etc. Outgoing: Marketing promotions – launching of new schemes, new products etc. Call centres have been increasingly popular as outsourcing increases. With outsourcing, a company contracts out some jobs to be handled by other companies. As it can be expensive to maintain call centre equipment and staff, some companies choose to outsource their telephone functions to an external call centre. In this case, external call centre staff can be trained to answer phone calls from a number of different companies.
5.4.2 Call Centre Advantages Call centres can provide a number of advantages to companies: 1. By centralizing telephone-based service and support in one location, companies can easily adjust staffing to match call volume. 2. Call centres can be located almost anywhere, allowing companies to take advantage of time zones and cheaper labor rates in different states and countries. 3. They also centralize the technology needs of companies, allowing major telecommunications setups to be installed in a small handful of call centres instead of a number of smaller offices, making upgrades and training easier. 4. Many call centres use a number of different technologies to help improve performance and customer experience.
5. Inbound call centres often use automatic call distribution, in which incoming calls are assigned to representatives in the order in which they are received. 6. Most call centres utilize call monitoring, in which customer calls are randomly monitored by quality assurance staff to ensure that phone representatives meet customer needs. 7. Call centre technology evolves constantly, helping call centre staff assist customers more efficiently and effectively. 5.4.3 Scope in Customer Support ? Customer service, especially in the shape of a call centre is to customers one of the most visible and significant aspects of organizational performance. ? For many organizations however, customer service is one of the most challenging and neglected areas of management, including those with modern call-centres. ? For customers the quality of customer service determines whether to buy and particularly whether to remain a customer. ? In any market or industry - it costs far more to gain new customers than to retain existing customers. Neglecting, constraining or failing to optimize customer services capabilities is waste of great opportunities.
5.5 Business Process Outsourcing (BPO)
Business Process Outsourcing (BPO) is a subset of outsourcing that involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. It is primarily used to refer to the outsourcing of services. BPO is typically categorized into back office outsourcing, which includes internal business functions such as human resources or finance and accounting and front office outsourcing, which includes customer related services such as contact centre services. A contact centre is a facility used by companies to manage all client contact through a variety of mediums such as telephone, fax, letter, e-mail and increasingly, online live chat. 5.5.1 BPO Advantages 1. Cost reductions: Cost reduction is done through process improvements, reengineering and use of technologies that reduce and bring administrative and other costs under control. 2. Concentration on core business: With the day-to-day back office operations taken care of, the management is free to concentrate more on the core business of the company. 3. Outside expertise: Company is saved from the hassles of recruiting and training personnel. BPO‘s ensure that experts from another company provide the needed guidance and skills. 4. Cater to changing customer demands: Many BPO‘s provide the management with flexible and scalable services to meet the customers' changing requirements and to support company acquisitions, consolidations and joint ventures. 5. Revenue increase: By outsourcing non-core processes, companies can concentrate on increasing their sales and market share, develop new products; spread out into new markets and increase customer service and satisfaction.
5.6 Knowledge Process Outsourcing (KPO)
Knowledge Process Outsourcing (KPO) is a form of outsourcing, in which knowledge-related and information-related work is shared. It may be in a different company or by a subsidiary of the same organization, may be in the same country or in an offshore location to save cost. This typically involves high-value work carried out by highly skilled staff. (Oct 11) KPO firms, in addition to providing expertise in the processes themselves, often make many low level business decisions, typically those that are easily undone if they conflict with higher-level business plans. KPO is usually focused on knowledge-intensive business processes that require significant domain expertise. The profile of people being hired to serve within KPO service companies are more diverse than just being drawn from technical IT services. These are people with MBAs and medical, engineering, design or other specialist business skills. The central theme of KPO is to create value for the client by providing business expertise rather than process expertise. KPO involves a shift from standardized processes to advanced analytical thinking, technical skills and decisive judgment based on experience. 5.6.1 Areas of operation 1. Investment research services (equity, fixed income and credit and quantitative research) 2. Business research services 3. Data analytics 4. Market research services 5. Valuation and fairness opinions 6. Legal research services (also known as Legal Process Outsourcing) 7. Patent research services 8. Business operations support, analytics & management
5.7 International Business Management
International business is a term used to collectively describe all commercial transactions (private and governmental, sales, investments, logistics and transportation) that take place between two or more regions, countries and nations beyond their political boundary. Usually, private companies undertake such transactions for profit; governments undertake them for profit and for political reasons. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc.
This increased international business has led to economic globalization, which refers to increasing economic interdependence of national economies across the world through a rapid
increase in cross-border movement of goods, service, technology and capital. Economic globalization comprises the globalization of production, markets, competition, technology and corporations and industries
5.7.1 Evolution of International Business ? The business across the borders of the countries had been carried on since times immemorial. However, the business had been limited to the international trade until the recent past. ? The post-World War period witnessed an unexpected expansion of national companies into international or multinational companies. ? The post 1990s period has given greater fillip to international business. ? In fact, the term international business was not in existence before two decades. The term international business has emerged from the term international marketing, which in turn, emerged from the term 'export marketing'. 5.7.2 International Trade to International Marketing ? Originally, the producers used to export their products to the nearby countries and gradually extended the exports to far off countries. ? Gradually, the companies extended the operations beyond trade. ? For example, India used to export raw cotton, raw jute and iron ore during the early 1900s. ? The massive industrialization in the country enabled us to export jute products, cotton garments and steel during 1960s. ? India, during 1980s could create markets for its products, in addition to mere exporting. ? The export marketing efforts include creation of demand for Indian products like textiles, electronics, leather products, tea, coffee etc., arranging for appropriate distribution channels, attractive package, product development, pricing etc. ? This process is true not only with India, but also with almost all developed and developing economies. 5.7.3 International Marketing to International Business ? The multinational companies that were producing the products in their home countries and marketing them in various foreign countries before 1980s started locating their plants and other manufacturing facilities in foreign/host countries. ? Later, they started producing in one foreign country and marketing in other foreign countries. ? For example, Unilever established its subsidiary company in India, i.e., Hindustan Lever Limited (HLL). HLL produces its products in India and markets them in Bangladesh, Sri Lanka, Nepal, etc. Thus, the scope of the international trade is expanded into international marketing and international marketing is expanded into international business. 5.7.4 Nature of International Business ? The 1990s and the new millennium clearly indicate rapid internationalization and globalization. ? The entire globe is passing at a dramatic pace through the transition period. Today, the international trader is in a position to analyze and interpret the global social, technical, economic, political and natural environmental factors more clearly.
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Conducting and managing international business operations is a crucial venture due to variations in political, social, cultural and economic factors, from one country to another country. For example, most of the African consumers prefer less costly products due to their poor economic conditions. Whereas the German consumers prefer high quality and high priced products due to their higher ability to buy. Therefore, the international businessman should produce and export less costly products to most of the African countries and vice versa to most of the European and North American countries. High priced and high quality Palmolive soaps are marketed in European countries and the economy priced Palmolive soaps are exported and marketed in developing countries like Ethiopia, Pakistan, Kenya, India, Cambodia etc.
5.7.5 Factors affecting International Business 1. Impact of Culture: In Switzerland, foreign dishwasher manufacturers expected the same rapid sales as they had first obtained in other West European markets; but sales in Switzerland were so slow that research had to be done to find out. The research showed that the Swiss homemaker had a different set of values to, for example, her French and English counterparts; she was very conscious of her role as strict and hardworking and her responsibility for the health of her family. To the Swiss homemaker dishwashers simply made life easy and this conflicted with her Calvinistic work ethic. Because of this research, dishwasher manufacturers had to change their advertising promoting, instead of ease and convenience, hygiene and health. They did this by emphasizing that because dishwashers used temperature higher than hand hot, the process was more hygienic than washing up by hand. 2. Language: Language is an important factor in international business. Even though 'English language' is a major language in business operations in the world, There are still a large number of 'non-English' speaking countries. Therefore, international business houses should train their employees in the local language of the host country. 3. Nationalism and Business Policy: Nationalism is a dominating factor of the social life of the people of the host countries. In fact, nationalism also affects the business operations of the multinational corporations dramatically and drastically. For example: The US people used the slogan 'Be American and Buy American made', when the US automobile industry failed to meet the competition of Japanese automobile companies operating in USA. Therefore, international business houses should be cautious of nationalism and it‘s after effects. 5.7.6 Market Potential Opportunities Market potential is defined as the capacity of a location, such as a country, to become or to grow as a demander of goods and services that outside suppliers might provide. Various measures of market potential are provided especially for emerging economies, intended as guides to exports and foreign direct investment. On the other words, market potential is a measure of probable demand for a product or service in a classified geographic area. There are different elements in market potential need to be followed to get accurate results. From the market potential information, we can determine and analyse markets for particular product by the sales, awareness, taste, perception, price of the competitor product, purchase patterns and so forth.
The different elements included in market potential: 1. Target market and market segment for the product: Target market is defined as a set of people from the population to which a company wishes to sell. Target markets are typically defined by demographic information such as age, income level, ethnicity or interests and not by body size or shape. 2. Demographic: It is commonly refers as the study on people population regarding their age, gender, income, race, education and so forth. Demographic will provide useful information such as people income level. It is because, customers differ in their needs and wants based on the income level etc. 3. Income level: It is the average earnings of individuals. Income level is essential to be consider in market potential research as the information about income level will guide the researcher on what kind of product that the customer will buy such as a BMW car or a Tata car, how much quantity will potential customer buy for the product such as in small amount or large amount and how often the potential customer will buy the product at a moment as well as the average consumption such as in a month, how frequently they buy the product. 4. Consumer behaviour: In consumer behaviour, we would like to determine what is the customer perception about different products 5. Competition: It is essential to determine the competition aspect because competition information will give information about the competitor product and the market share in the industry. 6. Government incentives: This point is important in considering market potential because the success of some products may depend on government support. Benefits of Market Potential Analysis: 1. 2. 3. 4. Understand market potential for a single store, network of stores or a new market Deploy resources effectively by ranking markets in priority order Forecast total opportunity in terms of number of customers and revenue potential Estimate your market share
5.7.7 Competitive Advantage Enterprise competitive advantage can be defined as: ?If an enterprise in the production operating within the territory is able to provide consumers with the same quality or better than the quality of rival products at the lower price and to get more than competitors average level of profit, then the enterprise has a competitive advantage.? The source of competitive advantage is the enterprise capability and resources. As far as these two factors, none of these factors alone can become a sufficient condition for competitive advantage. However, the effective combination of both factors is a necessary condition of high and sustained competitive advantage. Resources and internal capability are the results of long-term development, if resources and capability cannot be copied and imitated by competitors, then the enterprise has formed competitive advantage. Resources are the relative stable, easy to be observed assets; these assets will help to improve the performance of enterprise. Moreover, capability of enterprise refers to continual usage of skills to the organizational structure and staffs to complete the task. Looking from the resources advantage aspect, competitive advantage includes brand name, enterprise own technical knowledge and skills of its employees. From the aspect of capability advantage, competitive advantage includes management, learning ability and capability to innovate and so on.
5.8 Quality
In manufacturing, a measure of excellence or a state of being free from defects, deficiencies and significant variations, brought about by the strict and consistent adherence to measurable and verifiable standards to achieve uniformity of output that satisfies specific customer or user requirements. Quality is defined as "the totality of features and characteristics of a product or service that bears its ability to satisfy stated or implied needs." Quality control is a process employed to ensure a certain level of quality in a product or service. It may include whatever actions a business deems necessary to provide for the control and verification of certain characteristics of a product or service. The basic goal of quality control is to ensure that the products, services or processes provided meet specific requirements and are dependable, satisfactory and fiscally sound. Essentially, quality control involves the examination of a product, service or process for certain minimum levels of quality. The goal of a quality control team is to identify products or services that do not meet a company‘s specified standards of quality. If a problem is identified, the job of a quality control team or professional may involve stopping production temporarily. Depending on the particular service or product, as well as the type of problem identified, production or implementation may not cease entirely. 5.8.1 Total Quality Management (TQM) Total Quality Management (TQM) is an approach that seeks to improve quality and performance that will meet or exceed customer expectations. This can be achieved by integrating all quality-related functions and processes throughout the company. TQM looks at the overall quality measures used by a company including managing quality design and development, quality control and maintenance, quality improvement and quality assurance. TQM takes into account all quality measures taken at all levels and involving all company employees. 5.8.2 Principles of TQM TQM can be defined as the management of initiatives and procedures that are aimed at achieving the delivery of quality products and services. A number of key principles can be identified in defining TQM, including: 1. Executive Management: Top management should act as the main driver for TQM and create an environment that ensures its success. 2. Training: Employees should receive regular training on the methods and concepts of quality. 3. Customer Focus: Improvements in quality should improve customer satisfaction. 4. Decision Making: Quality decisions should be made based on measurements. 5. Methodology and Tools: Use of appropriate methodology and tools ensures that non-conformances are identified, measured and responded to consistently. 6. Continuous Improvement: Companies should continuously work towards improving manufacturing and quality procedures. 7. Company Culture: The culture of the company should aim at developing employees ability to work together to improve quality. 8. Employee Involvement: Employees should be encouraged to be pro-active in identifying and addressing quality related problems.
5.8.3 TQM Advantages 1. Majority of advantages are long-termed and tangible benefits from them appear only after successful realization. 2. In big organizations, this process can take few years. Long-term benefits expected from implementation of TQM ? higher productivity ? higher moral tonus of personnel ? decreasing of costs ? increasing of consumers' trust 3. This will make company popular and increase its status within society. 4. Avoidance of mistakes allows company to save money and time. 5. Extra resources can be used for range of products and services expansion or for other improvements. 6. TQM creates atmosphere of enthusiasm and satisfaction with performed job and welcomes awarding bonuses for creative approach to professional duties. 7. TQM intensively uses team style of work that allows employees share their experience, use their skills effectively and apply joint efforts for solving issues. 8. TQM gives to organization more flexibility in work and problem solving and improve work environment for each employee.
5.9 Six Sigma
? Six Sigma is a quality management initiative that takes a very data-driven, methodological approach to eliminating defects with the aim to reach six standard deviations from the desired target of quality. Six standard deviations means 3.4 defects per million (99.99966%). (Apr 12) Continually improving a product stays ahead of the times and the needs of customers and society, means improving its technological capabilities and overall product quality. Six Sigma is a business management strategy originally developed by Motorola, USA in 1986. It seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes. It uses a set of quality management methods, including statistical methods and creates a special infrastructure of people within the organization ("Black Belts", "Green Belts", etc.) who are experts in these methods. Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified financial targets (cost reduction or profit increase).
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Six Sigma projects follow two project methodologies following Plan-Do-Check-Act Cycle. These methodologies, composed of five phases each, bear the acronyms DMAIC and DMADV. (Oct 11)
5.9.1 DMAIC
DMAIC is used for projects aimed at improving an existing business process. The DMAIC project methodology has five phases: 1. Define the problem and the project goals, specifically. 2. Measure key aspects of the current process and collect relevant data. 3. Analyze the data to investigate and verify cause-and-effect relationships. Determine what the relationships are and attempt to ensure that all factors have been considered. Seek out root cause of the defect under investigation. 4. Improve or optimize the current process based upon data analysis using techniques such as design of experiments and standard work to create a new, future state process. Set up pilot runs to establish process capability. 5. Control the future state process to ensure that any deviations from target are corrected before they result in defects. Implement control systems such as statistical process control, production boards and visual workplaces and continuously monitor the process. 5.9.2 DMADV DMADV is used for projects aimed at creating new product or process designs. The DMADV project methodology has five phases: 1. Define design goals that are consistent with customer demands and the enterprise strategy. 2. Measure and identify CTQs (characteristics that are Critical to Quality), product capabilities, production process capability and risks. 3. Analyze to develop and design alternatives, create a high-level design and evaluate design capability to select the best design. 4. Design details, optimize the design and plan for design verification. This phase may require simulations. 5. Verify the design, set up pilot runs, implement the production process and hand it over to the process owner(s). 5.9.3 Roles in Implementation Six Sigma identifies several key roles for its successful implementation: ? Executive Leadership includes the CEO and other members of top management. They are responsible for setting up a vision for Six Sigma implementation. They also empower the other role holders with the freedom and resources to explore new ideas for breakthrough improvements. Champions take responsibility for Six Sigma implementation across the organization in an integrated manner. The Executive Leadership draws them from upper management. Champions also act as mentors to Black Belts. Master Black Belts, identified by champions, act as in-house coaches on Six Sigma. They devote 100% of their time to Six Sigma. They assist champions and guide Black Belts and Green Belts. Apart from statistical tasks, they spend their time on ensuring consistent application of Six Sigma across various functions and departments.
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Black Belts operate under Master Black Belts to apply Six Sigma methodology to specific projects. They devote 100% of their time to Six Sigma. They primarily focus on Six Sigma project execution, whereas Champions and Master Black Belts focus on identifying projects/functions for Six Sigma. Green Belts are the employees who take up Six Sigma implementation along with their other job responsibilities, operating under the guidance of Black Belts.
5.9.4 Features of Six Sigma 1. Timeframe: To effectively use the Six Sigma methodology, a substantial amount of time must be allowed for a project. It does not provide simple fixes and at times, the people involved can become frustrated with the time required to systematically follow the improvement model. 2. Training Requirements: In traditional Six Sigma implementations, employees go through extensive training to become Six Sigma project leaders (Black Belts and Green Belts) and sponsors (Champions and Process Owners). For the Black Belt role in particular, training can take several weeks or more and occur over a period of months. This is not feasible in some environments. 3. Corporate Focus: Although the principles underlying Six Sigma could certainly be made applicable to small business and organizations, it is primarily an option for larger corporate organizations. Overwhelmingly, the majority of training and information available is geared toward that sector. This makes it difficult for other groups to see any benefit in adopting the methodology. 5.9.5 Advantages of Six Sigma 1. Based on Data: Decisions are made based on empirical evidence, not just on assumptions and anecdotal evidence. This includes determining the need for a project, determining the cause of the problem being addressed and deciding what improvements will be made. In all these cases, data is required for decision-making. 2. Proven Success: Beginning with Motorola, many large companies have successfully rolled out Six Sigma initiatives and driven positive change in their organizations. The results have benefited customers, employees and shareholders. 3. Sustainable Solutions: The DMAIC and DMADV processes are specifically designed for sustainable solutions. In DMAIC, the improvements to a process are confirmed with data and an entire phase is devoted to ensuring that the gains are sustained. In DMADV, which is used for creating new products and processes, a similar mindset holds.
5.10 Exercise
Answer in brief (1-2 lines): 1. Define SCM. (Refer 5.2) 2. Define Quality. (Refer 5.8) 3. Define Six Sigma. (Apr 12)(Refer 5.9) 4. Define BPO. (Refer 5.5) 5. What is KPO? (Oct 11) (Refer 5.6) 6. Give any two methodologies of six sigma. (Oct 11) (Refer 5.9) 7. Define uses of CRM. (Apr 11) (Refer 5.3.3) 8. Define TQM. (Apr 11) (Refer 5.8.1) 1 mark
Write Short Notes: 1. Quality (Refer 5.8) 2. Six Sigma methodologies (Refer 5.9.1 & 5.9.2) 3. Modules of ERP (Refer 5.1.4) 4. SCM examples (Refer 5.2) 5. CRM (Refer 5.3 & 5.3.1 & 5.3.3) 6. Call Centre (Refer 5.4.1 & 5.4.2) 7. BPO (Refer 5.5 & 5.5.1) 8. KPO (Refer 5.6 & 5.6.1) 9. Factors affecting International Business (Refer 5.7.5)
3 marks
Answer the following in detail: 5 marks 1. Explain the activities of supply chain management. (Apr 11) (Refer 5.2& 5.2.1) 2. What is ERP? Explain different modules of ERP. (Oct 11) (Refer 5.1 &5.1.4) 3. Give the advantages of ERP. (Apr 11, Apr 12) (Refer 5.1.5) 4. What is economic globalization?(Refer 5.7) 5. Differentiate between Package ERP Solution Vs Custom Development ERP Solution. (Refer 5.1.3) 6. Explain the CRM process. (Refer 5.3.2) 7. Explain the advantages of Six Sigma process. (Refer 5.9.5) 8. Give any five features of TQM. (Oct 11) (Refer 5.8.1 & 5.8.2) 9. Explain activities of SCM. (Apr 12) (Refer 5.2)
doc_484443253.docx
1 SALES AND DISTRIBUTION MANAGEMENT SYSTEM ............................................... 7 1.1 1.2 Common Definitions and Vocabulary.............................................................................. 7 Sales Budgeting ................................................................................................................ 8 Market Segmentation ................................................................................................ 9 Customer Segmentation .......................................................................................... 10 Product Segmentation ............................................................................................. 11
1.2.1 1.2.2 1.2.3 1.3 1.4
Sales Flow ...................................................................................................................... 12 Customer Enquiry and Preparation of Quotation ........................................................... 12 Customer Enquiry ................................................................................................... 12 Preparation of Quotation ......................................................................................... 14
1.4.1 1.4.2 1.5
Customer Order Processing ............................................................................................ 15 Purchase Order (PO) ............................................................................................... 15 Sales Order (SO) ..................................................................................................... 17 Invoice (Bill) ........................................................................................................... 18 Steps in Order Processing ....................................................................................... 19
1.5.1 1.5.2 1.5.3 1.5.4 1.6
Pending Customer Orders .............................................................................................. 19 Procedure to handle Pending Orders....................................................................... 20
1.6.1 1.7
Sales Analysis ................................................................................................................ 20 Importance of Sales Analysis.................................................................................. 20 Computerized Sales Analysis: ................................................................................ 21
1.7.1 1.7.2 1.8
Sales Management.......................................................................................................... 21 Functions of Sales Management ............................................................................. 22 Objectives of Sales Management ............................................................................ 22 Principles of Sales Management ............................................................................. 22 Problems in Sales Management .............................................................................. 23
1.8.1 1.8.2 1.8.3 1.8.4 1.9
Distribution Management System .................................................................................. 24 Marketing (Distribution) Channel........................................................................... 24 Different intermediary Channels............................................................................. 25 Different forms of Channels ................................................................................... 25
1.9.1 1.9.2 1.9.3
1.9.4 1.9.5 1.10 1.11 1.12 2
Importance (Need) of Distribution Channels .......................................................... 26 Challenges of Distribution Channels ...................................................................... 27 Components of designing Sales Management System ............................................... 27 Case Study on Sales and Distribution Management System ...................................... 29 Exercise ...................................................................................................................... 30
HUMAN RESOURCE MANAGEMENT SYSTEM ........................................................... 33 2.1 Introduction .................................................................................................................... 33 Organizational Structure Chart ............................................................................... 33 Introduction to Human Resource Management ...................................................... 34 Evolution of HRM .................................................................................................. 35 Scope (Functions) of HRM ..................................................................................... 35 Challenges before the HR manager ........................................................................ 36 Significance (Need) of HRM .................................................................................. 37 Human Resource Management Systems (HRMS) .................................................. 37
2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.1.6 2.1.7 2.2
Employee Database and Knowledge Management System ........................................... 38 Employee ................................................................................................................ 38 Employee Database ................................................................................................. 38 Knowledge Management System ........................................................................... 40
2.2.1 2.2.2 2.2.3 2.3
Recruitment – Technique ............................................................................................... 40 Recruitment process ................................................................................................ 40 Recruitment objectives............................................................................................ 43 Factors affecting Recruitment ................................................................................. 43 Sources of Recruitment ........................................................................................... 44 Purpose (Importance) of Recruitment ..................................................................... 45 E-Recruitment ......................................................................................................... 45
2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 2.3.6 2.4
Employee Appraisal – Performance Efficiency ............................................................. 46 Need (Objectives) for Appraisal ............................................................................. 46 Commonly used Appraisal methods ....................................................................... 47 Performance Efficiency and Appraisals.................................................................. 48 Types of Performance Pay ...................................................................................... 49 Problems (Limitations) in Performance Appraisal ................................................. 49
2.4.1 2.4.2 2.4.3 2.4.4 2.4.5
2.5
Employee Training ......................................................................................................... 49 Objectives of Training ............................................................................................ 50 Assessing Training needs ........................................................................................ 50 Training methods .................................................................................................... 50 Ways to make Training effective ............................................................................ 52 Benefits from Training and Development .............................................................. 53 Training Process...................................................................................................... 53
2.5.1 2.5.2 2.5.3 2.5.4 2.5.5 2.5.6 2.6
Leave Accounting and Payroll ....................................................................................... 54 Leaves Policy .......................................................................................................... 54 Leaves Application ................................................................................................. 54 Payroll ..................................................................................................................... 55 Advantages of payroll software .............................................................................. 56 Payroll Reports........................................................................................................ 56 Various HR Reports ................................................................................................ 57
2.6.1 2.6.2 2.6.3 2.6.4 2.6.5 2.6.6 2.7 2.8 2.9 3
Components of designing Human Resource Management System ............................... 60 Case Study on Human Resource Management .............................................................. 64 Exercise .......................................................................................................................... 65
MANUFACTURING / PRODUCTION PLANNING CONTROL SYSTEM .................... 67 3.1 3.2 Introduction to Production System ................................................................................. 67 Capacity Requirements Planning for Equipment ........................................................... 67 Capacity Planning ................................................................................................... 67 Manpower Planning ................................................................................................ 68
3.2.1 3.2.2 3.3
Material Requirements Planning (MRP I) ..................................................................... 69 Objectives of MRP .................................................................................................. 70 MRP Inputs ............................................................................................................. 70 MRP Outputs .......................................................................................................... 70 Manufacturing Resource Planning (MRP II) .......................................................... 71 Advantages of MRP ................................................................................................ 71
3.3.1 3.3.2 3.3.3 3.3.4 3.3.5 3.4
Production Planning and Control ................................................................................... 72 Objectives of PPC ................................................................................................... 73 Functions of PPC .................................................................................................... 74
3.4.1 3.4.2
3.4.3 3.4.4 3.4.5 3.4.6 3.4.7 3.4.8 3.5
Factors affecting PPC ............................................................................................. 74 Advantages of PPC ................................................................................................. 74 Work Order Management ....................................................................................... 74 Functions of Work Order Management .................................................................. 75 Categories of Materials ........................................................................................... 75 Economic Order Quantity (EOQ) ........................................................................... 75
Material Procurement ..................................................................................................... 76 Purchase Indent ....................................................................................................... 76 Vendor Analysis...................................................................................................... 77 Bill of Materials (BOM) ......................................................................................... 78 Receipt of Material ................................................................................................. 79 Bin Card .................................................................................................................. 81
3.5.1 3.5.2 3.5.3 3.5.4 3.5.5
3.6 Case Study on Manufacturing / Production Planning Control System and Sales and Distribution Management System............................................................................................. 82 3.7 4 Exercise .......................................................................................................................... 85
BANKING ............................................................................................................................ 87 4.1 Basics of Banking........................................................................................................... 87 Relationship - Bank and Customer ......................................................................... 87 Products and Services ............................................................................................. 88
4.1.1 4.1.2 4.2
Savings Bank Account ................................................................................................... 88 Opening an Account ............................................................................................... 89 Nominee .................................................................................................................. 89 Things to Consider While Opening a Savings Account ......................................... 89 General Document Required (KYC Norms)........................................................... 89 Closing of Account ................................................................................................. 89 Account Transfer .................................................................................................... 90
4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.2.6 4.3 4.4
Cheques .......................................................................................................................... 90 Transactions ................................................................................................................... 90 Deposits................................................................................................................... 90 Withdrawals ............................................................................................................ 90
4.4.1 4.4.2 4.5
ATM Application ........................................................................................................... 91
4.5.1 4.5.2 4.5.3 4.5.4 4.6
Features ................................................................................................................... 91 Construction ............................................................................................................ 91 Advantages .............................................................................................................. 92 Reliability and Security measures ........................................................................... 93
Online banking (E-banking or Internet banking) ........................................................... 93 Advantages of Online Banking ............................................................................... 93 Security features...................................................................................................... 94 Types of Internet Banking Products (Services) ...................................................... 94
4.6.1 4.6.2 4.6.3 4.7
Biometric Devices and its scope in Applications ........................................................... 95 Types of Applications (Biometric devices) ............................................................ 95 Need (Importance) for Biometrics .......................................................................... 96 Usage Methodology ................................................................................................ 96 Advantages .............................................................................................................. 97
4.7.1 4.7.2 4.7.3 4.7.4 4.8 5
Exercise .......................................................................................................................... 97
ADVANCED BUSINESS SYSTEMS ................................................................................. 99 5.1 Enterprise Resource Planning (ERP) ............................................................................. 99 Scope of ERP .......................................................................................................... 99 ERP Evaluation ..................................................................................................... 100 Package ERP Solution Vs Custom Development ERP Solution .......................... 100 Modules of ERP .................................................................................................... 101 Advantages of ERP ............................................................................................... 102
5.1.1 5.1.2 5.1.3 5.1.4 5.1.5 5.2
Supply Chain Management (SCM) .............................................................................. 103 Advantages of SCM .............................................................................................. 104
5.2.1 5.3
Customer Relationship Management (CRM) ............................................................... 104 Need (Scope) of CRM .......................................................................................... 105 CRM Process and its Importance .......................................................................... 105 CRM Benefits ....................................................................................................... 105
5.3.1 5.3.2 5.3.3 5.4
Call Centre.................................................................................................................... 106 Call Centre Features .............................................................................................. 106 Call Centre Advantages ........................................................................................ 106 Scope in Customer Support .................................................................................. 107
5.4.1 5.4.2 5.4.3
5.5
Business Process Outsourcing (BPO) .......................................................................... 107 BPO Advantages ................................................................................................... 107
5.5.1 5.6
Knowledge Process Outsourcing (KPO) ...................................................................... 108 Areas of operation ................................................................................................. 108
5.6.1 5.7
International Business Management ............................................................................ 108 Evolution of International Business ...................................................................... 109 International Trade to International Marketing..................................................... 109 International Marketing to International Business ................................................ 109 Nature of International Business ........................................................................... 109 Factors affecting International Business ............................................................... 110 Market Potential Opportunities ............................................................................. 110 Competitive Advantage ........................................................................................ 111
5.7.1 5.7.2 5.7.3 5.7.4 5.7.5 5.7.6 5.7.7 5.8
Quality .......................................................................................................................... 112 Total Quality Management (TQM) ....................................................................... 112 Principles of TQM ................................................................................................ 112 TQM Advantages .................................................................................................. 113
5.8.1 5.8.2 5.8.3 5.9
Six Sigma ..................................................................................................................... 113 DMAIC ................................................................................................................. 114 DMADV ............................................................................................................... 114 Roles in Implementation ....................................................................................... 114 Features of Six Sigma ........................................................................................... 115 Advantages of Six Sigma ...................................................................................... 115 Exercise .................................................................................................................... 115
5.9.1 5.9.2 5.9.3 5.9.4 5.9.5 5.10
1
SALES AND DISTRIBUTION MANAGEMENT SYSTEM
Objective: Sale and distribution form an important part of every industry. The objective of this chapter is to understand the different aspects of sale and distribution process like sales budgeting, sales forecasting, segmentation, order processing, sales analysis, sales management and channels of distribution which would provide the building blocks of building an effective Sales and Distribution Management System.
1.1 Common Definitions and Vocabulary
Let us first understand the common definitions and terminologies used in the world of sales and distribution management:
? ? ? ? ? ? ? ? ? ? ? Company: Any entity engaging in business, such as a proprietorship, partnership or corporation. Product: The end result of the manufacturing process, to be offered to the marketplace to satisfy a need or want. Market: A public place where buyers and sellers make transactions, directly or via intermediaries. Supplier/Vendor: A company that supplies parts or services to another company. Customer: A person, company or other entity which buys goods and services produced by another person, company or other entity. Raw Material: Unfinished goods consumed by a manufacturer in providing finished goods. Inventory: A company's merchandise, raw materials and finished and unfinished products that have not yet been sold. Enterprise Resource Planning (ERP) system: Integrated computer based system used to manage internal and external resources. Pricelist: List indicating rates payable for different goods. Either on sheet of paper, online, booklet etc. Catalogue: Book/e-Book containing description of goods for sale along with price, features and technical specifications. Price Current: Price current is the price for which goods usually sell in the market. A printed newspaper containing a list of such prices is also called a price current. Generally, a statement or list of the prevailing prices of merchandise is published at regular intervals. Firm Order: An order to a broker to buy or sell a security, where the order is not dependent on later confirmation by the client. Rather, the client makes the order and the broker fills it.
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Consumer Product: Merchandise or other item of common or daily use, ordinarily bought by individuals or households for private consumption. Expenses incurred: In terms of distribution mode, it can be elaborated as the expense paid against storing the goods, packing, shipping, taxes, freight etc. Sale: It is an activity involved in the selling of products or services in return for money or other compensation. It is an act of completion of a commercial activity.
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Distribution: It is the process of making a product or service available for use or consumption by a consumer or business user, using direct means, or using indirect means with intermediaries. Each of the elements in the distribution chain will have their own specific needs, which the producer must take into account, along with those of the all-important end-user.
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Channels: They are sets of independent organisations (called intermediaries) involved in making the product available for consumption like distributors, retailers, etc.
1.2 Sales Budgeting
A sales budget is a detailed schedule showing the expected sales for the budget period; typically, it is expressed in both revenue and units of production. It is the starting point in preparing the master budget. All other items in the master budget including production, purchase, inventories and expenses, depend on it in some way. The sales budget is constructed by multiplying the budgeted sales in units by the selling price. Importance of Sales Budget: It helps you to answer questions like: 1. How much can you realistically sell next year? 2. How much will you charge for your goods or services? 3. How much will it cost to produce your product? 4. How much are your operating expenses? How to control expenses? 5. Do you need to hire employees? If so, how many and how much will you pay? 6. Improve distribution channels if possible. 7. Improve overall sales and marketing strategies.
Sales forecasting: Prediction of the future sales of a particular product over a specific period of time based on past performance of the product, inflation rates, unemployment, consumer spending patterns, market trends and interest rates. In the preparation of a comprehensive marketing plan, sales forecasts help the marketer develop a marketing budget, allocate marketing resources and monitor the competition and the product environment. Thus the budget sets the minimum requirements whereas a forecast is usually an
expectation of what is likely to happen.
Companies that implement accurate sales forecasting processes realize important benefits such as: 1. 2. 3. 4. 5. 6. Enhanced cash flow Knowing when and how much to buy In-depth knowledge of customers and the products they order The ability to plan for production and capacity The ability to identify the pattern or trend of sales Determine the value of a business above the value of its current assets
7. Ability to determine the expected return on investment The combination of these benefits may result in: ? ? ? ? Increased revenue Increased customer retention Decreased costs Increased efficiency
Segmentation is important process as part of defining the sales budget. The different forms of segmentation are:
1.2.1 Market Segmentation
Market Segmentation is defined as the process of splitting customers or potential customers, in a market into different groups or segments, within which the customers share a similar level of interest in the same or comparable sets of needs satisfied by a distinct marketing proposition. (Apr 12)
It is also explained as a marketing technique that targets a group of customers with specific characteristics, i.e. a particular group that has its own distinct customer profile and buyer characteristics so that for marketing purposes, it can be targeted separately from other segments of the market.
1.2.1.1 Benefits of Market Segmentation
(Oct 11, Apr 12) 1. 2. 3. 4. 5. 6. 7. Helps in better understanding of the customers‘ needs and wants Better targeting and position of the product Encourages two-way communication among the potential buyer and the organization Maintaining effective relationship with the customers Retaining the existing customers and attracting new ones Improving service delivery standards Reducing cost / expenses on various marketing activities and increasing market share; resulting in higher profits
1.2.1.2 Conditions for effective Market Segmentation
? ? ? ? ? Measurable: It should be possible to determine the values of the variable used for the segmentation. Relevant: It should justify the expected profits and the growth potential. Accessible: The target customers must be reachable and servable for the organization. Distinguishable: The target audiences must be diverse and able to show different reactions to different marketing mix. Feasible: The firm must have an ability to draw an effective marketing program for its customers.
1.2.2 Customer Segmentation
Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits and so on. Using segmentation allows companies to target groups effectively and allocate marketing resources to best effect. With Consumer Segmentation, the market is divided based on: 1. Geography 2. Demography 3. Psychological 4. Buying behaviour
1.2.2.1 Geographic Segmentation Geographic Segmentation divides markets into different geographical units like: 1. Regional Population Distribution: Segmented on the basis of region 2. Urban, Suburban and Rural Distribution: Segmented on the basis of city size or population concentration 3. Size of Metropolitan Area: Segmented on size of population drawn along country lines and may cross state borders. Further classified as: a. Metropolitan Statistical Area(MSA): Population of 50,000 to 1,00,000 b. Primary Metropolitan Statistical Area(PMSA): Large MSA population at least 10,000,00 c. Consolidated Metropolitan Statistical Area (CMSA): Giant urban centre consisting of two or more adjacent PMSA‘s 1.2.2.2 Demographic Segmentation
Demographic Segmentation divides the population based on following variables:
1. 2. 3. 4. 5. 6. 7. 8. Age (e.g.: Baby Foods) Gender (e.g.: Lipstick for females) Family size (e.g.: Big size car) Income (e.g.: Credit Cards) Occupation (e.g.: Medical/Surgical Instruments) Education (e.g.: Pens/Pencils/Dissection boxes to students) Ethnicity/religion (e.g.: God idols and frames) Nationality (e.g.: Amul Taste of India)
1.2.2.3 Psychographic (Psychological) Segmentation Psychographic Segmentation divides market based upon: 1. Activities (e.g. dividing based on leisure activities, driving preferences, eating out habits, etc.)
2. Opinion(e.g. growth of demand for organic foods or products that are (or are ?perceived? to be) environmentally friendly) 3. Interests (e.g. musical instruments, sports goods etc.) 1.2.2.4 Behavioral Segmentation Behavioural Segmentation divides the markets based on customer buying behaviour: 1. Benefits (e.g. Toothpaste, for example, is not only bought to maintain healthy teeth and gums, but also because of its taste and in order to help combat bad breath) 2. Usage (e.g. use of cell phones for different functions) 3. Brand Loyalty (e.g. customers buy the same hand wash for years) 4. Occasional/Festival (e.g. Umbrellas, firecrackers etc.)
1.2.3 Product Segmentation Product Segmentation can be classified into: 1. Consumer product 2. Business product Consumer product is further classified into:
a. Convenience Goods (Soap, Toothpaste, Cooking gas): Consumer is already aware of it. b. Shopping Goods (Furniture, Automobiles): Consumer tends to look before buying. c. Speciality Goods (Electronic Appliances/Health Products – Exercise Machines): Consumer generally buys preferred brands, is ready to wait and sacrifice. d. Unsought Goods (Cell phone, PDA): New in the market and consumer is not aware or is aware but not sure.
Business product is further classified into: a. b. c. d. e. Raw materials: Goods that become part of another tangible product Major equipment: Like CNC machines Accessory equipment: Like Cash counting machines in shops Component parts: Like Tyres in automobile industry Process materials: Classification of goods bought by organizations for incorporation into a product; the process materials cannot be recognized in the finished product f. Operating Supplies: Fabricating Oil, Pencils g. Service: Like housekeeping services
1.3 Sales Flow
Following are the steps involved in a typical sales flow: ENQUIRY
QUOTATION
ORDER
DELIVERY & INVOICE And
SALES ANALYSIS
Figure 1: Steps in a Sales Flow
1. 2. 3. 4. 5. 6.
Customer Enquiry: Seeking information about the availability of certain goods Preparation of Quotation: Answer to the enquiry Placing an Order: Asking for the goods with exact specification Order processing: Delivering the goods and raising an invoice Pending Orders: The orders which cannot be completed Sales analysis: For improving the process of sales
We will study the above steps in detail.
1.4 Customer Enquiry and Preparation of Quotation
1.4.1 Customer Enquiry
Customer Enquiry is the first step in commercial transaction. Prospective buyers have a choice on what to buy, whom to buy from and what price to buy at. It is defined as the process of seeking information about the availability of certain goods and the terms at which they are offered for sale. ? Enquiry letter must consist of following salient features: 1. Must specify the exact type of goods required to buy (size, style, shape, colour, quality, brand, etc.)
2. 3. 4. 5. ?
Specify quantity for purchase Provide samples if available Catalogue if provided Clearly state the terms and conditions (discount, payment terms, etc.)
Types of enquiries: Enquiries can be created through: 1. Sellers website 2. Telephonic 3. Email 4. Direct walk-in Follow up: A sellers nominated customer care executive does the follow up of a buyer‘s enquiry. Number of times many a follow-ups are required, these are generally logged for the performance of the customer sales department, product demand and buyers interests. Closure: An enquiry is either to be handled, completed or cancelled as closed.
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Example of Customer Enquiry letter: Consider a scenario where ABC computers assembles and sell computers. REDsoft is a software company and they require buying 5 computers from ABC Computers. So they send in an enquiry form to ABC computers, clearly stating what exactly they are looking for in buying.
Figure 2: Format of an Enquiry Letter
Details in above Enquiry Letter: 1. Address of REDsoft: The location where goods (computers) will be delivered. If delivery address is different than the address on letter head, it must be specified 2. Ref: ENQ10090: This is for reference purposes for REDsoft and ABC when they start discussion. E.g. With reference to your enquiry# ENQ10090. This can be a unique number (primary key) in REDsoft‘s EMS - Enquiry management system 3. No of computers stated – 5 4. Details of the configuration 5. Estimated time for 30 days from order Thus, REDsoft has clearly adhered to the rules of an ideal enquiry process. Now ABC computers is interested to sell the computers to REDsoft, so it will answer to this enquiry.
1.4.2 Preparation of Quotation
The answer to the enquiry is called as a quotation. It is the second step in a commercial transaction. The seller (in our example, ABC Computers) has to give immediate attention to the prospective buyers, by quoting the terms of sale on goods covered in the enquiry letter (form). (Apr 11, Oct 11) Quotation must consist of following salient features: (Apr 12) 1. Thank the enquirer 2. Specify price of goods asked in the enquiry 3. State terms of sale 4. Payment terms 5. Specify delivery schedule: Time, place and delivery locations 6. Provide samples/ catalogues if possible Example of Quotation:
Figure 3: Format of a quotation
Details in above quotation: 1. Address of ABC Computers- From where goods(computers) will be dispatched 2. Address of REDsoft Corp- where goods(computers) will be delivered 3. QTn# 190078 - A unique (primary key) assigned as the serial number to the quotation for all further references to ENQ#10090. This is mapped in the EMS software 4. Description of the goods to be dispatched 5. Payment terms 6. Delivery terms 7. Other terms and conditions like Tax/VAT etc.
1.5 Customer Order Processing
1.5.1 Purchase Order (PO)
A purchase order is a commercial document issued by a buyer to a seller, indicating types, quantities and agreed prices for products or services the seller will provide to the buyer. The buyer uses it to request products and services from suppliers instead of calling them to request their purchase.
In our example, once REDsoft is happy with what ABC offers, it sends ABC Computers a Purchase Order. Example of PO form: (Oct 11)
Figure 4: Purchase Order form
Thus on the PO form, you describe: 1. What it is that you require (product details) 2. When you want it and (timelines for the order to materialize) 3. Where do you want it (shipping name and address) 4. How much you expect to pay for it By using this Purchase Order template, you can ensure you receive exactly what you have ordered, at the right time and the right price.
1.5.2 Sales Order (SO) A sales order is an internal document of the company, meaning it is generated by the company itself. A sales order should record the customer's purchase order which is an external document. The customer's PO is the originating document which triggers the creation of the sales order. A sales order, being an internal document, can therefore contain many customer purchase orders under it. In a manufacturing environment, a sales order can be converted into a work order to show that work is about to begin to manufacture, build or engineer the products the customer wants. The SO from ABC Computers is raised against PO raised by REDsoft.
Below is a sample screen shot of a SO:
Figure 5: Sales Order form
Thus on the SO form, you describe: 1. What it is that you will provide (product item details with price and quantity) 2. When will you ship it(Customer Required Date (CRD) or Delivery Date) 3. Where will you ship it (shipping name and address)
4. Expected money for the sale 5. Reference to the PO, Quotation, etc. 6. Terms of payment, delivery, taxation etc. Once goods are ready for dispatch, a Delivery Note (DN) is sent to the warehouse along with description of scheduled items to ship out. The warehouse then takes care of packing the goods and dispatching them by the terms of delivery attached in the Delivery note/Sales Order. An Invoice (Bill) will be sent along with the shipment.
1.5.3 Invoice (Bill)
An Invoice (Bill) is a commercial document issued by a seller to the buyer, indicating the products, quantities and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller, according to the payment terms. The buyer has a maximum amount of days to pay these goods and are sometimes offered a discount if paid before.
Figure 6: Invoice
Thus on the Invoice, you describe: 1. Invoice number and date 2. Customer details (name, address, etc.) 3. Delivery details (number, date, shipping/unloading point, transporter, etc.) 4. Reference Sales Order/Purchase Order 5. Product details 6. Cost and Taxes 7. Payment terms, other terms and conditions
1.5.4 Steps in Order Processing (Apr 12) To summarize, following will be the steps as part of customer order processing:
1. As a first step, a potential buyer raises a customer enquiry to eligible sellers. This can also be called as process of procuring by the buyer. Procuring can be done by a voluntary offer, advertisement or through selling agents. 2. The interested sellers provide a quotation to the buyer. 3. The buyer compares the different quotation on different parameters like cost, quality, terms and conditions, etc. and chooses a particular seller 4. The buyer then sends a Purchase Order (PO) to the seller 5. The seller raises a Sales Order (SO) in response to the PO and converts purchase order information to an actual order. Before that, he checks if it is possible to execute the order according to terms and conditions and checking other aspects (like stock, quality, etc.) 6. The seller also generates customer invoices and ships the goods to the buyer. The seller also sends the buyer the receipts or documents that entitle him to claim the goods.
1.6 Pending Customer Orders
Pending orders are orders that are normally pending with the seller and are not completely/partially delivered to the buyers. The reasons could be: 1. Lack of manpower to execute orders in hand 2. Lack of skilfully doing a job, time is wasted 3. Shortage of inventory 4. Too many orders in hand 5. Orders are complete but distribution channel is slow 6. Customer credit issues: Payment problems from customers/buyers 7. Sudden price raise or change in taxation rules
8. Priority changes for certain products, slowing other products completion 9. Other considerable factors like natural disasters - fire, earthquake etc. at manufacturing units
1.6.1 Procedure to handle Pending Orders
1. Such situations tend to disappoint customers; this has to be handled with proper customer relations and communications. 2. Explain the reasons for delay, so the buyer/customer is aware of the delayed delivery schedule. 3. Expedite order creation: As a next process, a proper plan to be implemented to continue efficient delivery schedule and avoid orders to wait. 4. Age wise analysis for corrective action: A report according to time will scrutinize the situation of the orders age wise, to determine which orders are required to be pushed at priority. 5. Lack of product/part availability: All inventories to be warehoused/stocked properly to avoid out of status, this can be attained using the concept of EOQ: Economic Order Quantity. 6. Respect Customer Required Date (CRD) and improve process to maintain: The customer frames a CRD because it is planned, thus the seller should respect and do his best to deliver the same on the CRD mentioned.
1.7 Sales Analysis
It is determination of the extent to which a sales force has met its sales objectives within the specified timeframe. Through sales analysis, a business will become familiar with emerging trends in the marketplace. When sales fluctuate, it implies new trends manifesting that a company needs to master to keep sales on par with those of the competition. A company needs to know which products competitors are selling more of to draw its own strategy. (Apr 11, Apr 12) Sale analysis can be done: 1. By territory: Geographical area and quotas. E.g. Northern/Western/Eastern/Southern 2. Sales person: Problems faced and ways to work out individual problems faced in selling the product 3. Product line: In case of multi products, the company analysis its force on sale depending how particular product performs in the market. E.g. Tata Motors: Cars/SUV/Trucks/Insurance/Salt etc. 4. Customer: Compares loyal customers with shifting customers
1.7.1 Importance of Sales Analysis
It will be help the companies to find following critical information: 1. Cost of goods revenue of sale / Profit per revenue 2. Cost per segment / Cost per territory 3. Cost per sales person / Cost per channel member 4. Average cost/order
Sample Sales Analysis: (Oct 11) Western Region Sales (Q4 Oct to NUM2011) ABC Computers Sales Area Pune Mumbai Goa Total Planned 10000 25000 5000 40000 Actual 12500 22000 1400 35900 P/L 2500 -3000 -3600 -4100 %Quota 125 % 88 % 28 % 89.75 %
Figure 7: Region/territory sales of ABC Computers
1.7.2 Computerized Sales Analysis:
Using simulation provided with a database of product related data to analyse the sales is called Computerized Sales Analysis and it uses: 1. Basic statistical measures of average (mean, median) 2. Basic statistical measures of spread (variance and standard deviation) 3. Histogram 4. Correlation Analysis 5. Pareto Analysis Computerized Sales Analysis can be used to perform the following: 1. Organise and analyse data 2. Define reports 3. Modify data 4. Select groups of records 5. Summarise data 6. Compare data
1.8 Sales Management
Sales Management is the art of meeting and exceeding the sales goals of an organization through effective planning, controlling, budgeting and leadership. It is an important business function as net sales through the sale of products and services and resulting profit drive most commercial business. These are also typically the goals and performance indicators of Sales Management. (Oct 11) Sales Management can involve any of the following activities:
1. Formulation of sales strategy through development of account management policies, sales force compensation policies, sales revenue forecasts and sales plan. 2. Implementation of sales strategy through selecting, training, motivating and supporting the sales force, setting sales revenue targets. 3. Sales force management through development and implementation of sales performance, monitoring and evaluation methods and analysis of associated behavioural patterns and costs. Thus, Sales Management helps the organization to achieve the sales targets efficiently.
1.8.1 Functions of Sales Management
(Oct 11)
The following are important functions performed by Sales Management:
1. Size of Sales Force: Determine how much resource in terms of size of sales force is required to sell the product. 2. Determine Sales Organization: Determine the number of sales offices required and their organization to function and cater customers. 3. Determine Sales Regions (Territory): Combine sales offices under various regions to monitor sales volume and profits. 4. Recruitments/Trainees: To recruit sales people as and when required, train them if necessary with company made sales policy and regulations. 5. Task Allocation and Target Setting: Assign sales tasks to region/office/individually and target volume and profit for calculating sales budgets and management related reports. 6. Appraisals/Compensations/Commissions: Perform appraisals and calculate compensations and commissions, which help, sell products faster due to increase in team morale. 7. Feedback mechanism: Interact with customers and generate an improvement in sales functions. 8. Distribution channel management: Manage distribution channels so that the product reaches well in time, at correct place and price.
1.8.2 Objectives of Sales Management The following are objectives of the Sales Management from company‘s viewpoint:
1. 2. 3. 4. Achieving target goals by acquiring sufficient sales volume. Providing contribution to profits Help continuous growth of the product life cycle Reduce expenses and raise gross margins to convert loss into profit
1.8.3 Principles of Sales Management
Following are the principles to be followed by sales managers to efficiently perform their role:
1. Lead by example: A successful sales manager has higher standards and stricter policies than the company requires. 2. Instil discipline in your organization: People must be told the discipline measures to be followed. 3. Let them know what is expected: Sales managers must let people know exactly what is required of them. 4. Manage your people individually: While training, giving constructive criticism, taking disciplinary action it must be done one to one with people 5. Be goal oriented: People should know that hitting the goals and targets is the primary purpose of being in business. 6. Treat others, as you want to be treated: People must be treated with due respect. 7. Catch them doing something right: Providing positive feedback on a regular basis makes it easier to deliver negative feedback when necessary. 8. Manage on objective information: The decisions must be based on information and not bias. 9. Get on the floor: Sales managers should always ready to be on the floor if the situation demands so 10. Be direct and to the point: The sales managers must be direct, clear and concise in their conversations. 11. Do not settle for the status quo: Sales managers need to keep on improving the different processes and targets. 12. Be firm but fair: Everyone must be treated with same process for a given action.
1.8.4 Problems in Sales Management It is important to understand the problems faced by Sales Management. For better understanding let us take an example where a company CREATIVE EDUCATIONAL PRODUCTS (CEP) wants to launch a new pen for students in market called Wonder Pen and decides to sell it for Rs.5. Let us see what are the different problems faced by the company:
1. Introduction to a new Product: This happens when a new product comes in the market and the customer/buyer is reluctant to buy it. At this time sales management decides to promote the product through different advertising channels like: ? ? ? ? ? Television Radio Cinemas Newspapers Banners and hoardings in public places
? Internet Buyers are thus introduced to the product brands. Sometimes samples are distributed free of charge as samples for the buyer to use and feel comfortable with the use of the product. CEP will market their pen in stationary stores nearby to colleges, schools and institutes using hoardings. In addition, it could publish advertisement in newspapers.
2. Demand Creation: As the product is now known in the market, the manufacturer/seller identifies who are the potential buyers and creates a need of the product making it a demand. The problem which they may face is customers sticking to existing products and non-accepting of new product. Thus, after students start using Wonder Pen, they may realise that they are getting good worth for Rs.5, but it is important to convince them to use it for first time. 3. Market Research: For the manufacturer/seller to gain profitability, it is necessary for him to know how good the product is doing in the market. He thus carries out a market research depending on the following factors: ? ? ? Volume of sale region wise (What is quantity of Wonder Pen sold in different areas?) Customer reaction toward the usage (Do students like using Wonder Pen?) Efficiency of products distribution on time and correct price (Is the Wonder Pen available on time and correct price?) ? Dealer behaviour towards the products sale (What is shopkeepers view about Wonder Pen?) 4. Sales Forecast and Product Development: Depending on the market research, the seller can study and find out how well the product is doing in the market. It will help to understand whether any modifications are required to boost up sales. It also helps him to know in which region the product responded well, so he can focus on more distribution in that particular area. Thus if Wonder Pen manufacturer find that pens are getting sold higher in particular area, they will double the shipments to that area. If Wonder Pen overall is a success, then CEP can think of manufacturing a new series of gel pens called Wonder Gel Pen and sell for Rs.5.00. 5. Managing distribution channels: This is major problem for Sales Management to efficiently manage the distribution channels to keep the overall costs low. Thus, if pens can be reached at correct places in time and at low cost shipping a box of 500 pens and there are many boxes to be shipped to many stores, CEP has to think of a perfect route of distribution, so that the vehicle will move straight in one direction distributing the boxes efficiently, without making round trips.
1.9 Distribution Management System
1.9.1 Marketing (Distribution) Channel
Marketing Channel is a set of practices or activities necessary to transfer the ownership and move goods and from the point of production to the point of consumption and it consists of all the institutions in the marketing process. The different roles played by marketing channels include: 1. Linking producers to buyers 2. Performing sales, advertising and promotion 3. Influencing the firm's pricing and product strategy 4. Customizing profits, offering credit, etc.
Activities involved in the marketing channel are wide and varied and include 1. Ordering 2. Handling and shipping 3. Storage 4. Display 5. Promotion 6. Selling 7. Information feedback
1.9.2 Different intermediary Channels
There are different intermediary channels between the producer and the consumer which add unique value at each level. Let us look at their value additions: 1. Resellers: These organizations, also known within some industries as intermediaries, distributors or dealers, generally purchase or take ownership of products from the marketing company with the intention of selling to others. These organizations can be classified into several sub-categories including: ? ? ? Retailers: Organizations that sell products directly to final consumers. Wholesalers: Organizations that purchase products from suppliers and in turn sell these to other resellers, such as retailers or other wholesalers.
Industrial Distributors: Firms that work mainly in the business-to-business market selling products obtained from industrial suppliers. 2. Specialty Service Firms: These are organizations that provide additional services to help with the exchange of products but generally do not purchase the product (i.e., do not take ownership of the product). These organizations can be classified into several sub-categories including: ? ? ? Agents and Brokers: Organizations that mainly work to bring suppliers and buyers together in exchange for a fee. Distribution Service Firms: Offer services aiding in the movement of products such as assistance with transportation, storage and order processing. Others: This category includes firms that provide additional services to aid in the distribution process such as insurance companies and firms offering transportation routing assistance or software companies providing distribution management software.
1.9.3 Different forms of Channels Distribution channels are primarily of two types: 1. Direct Marketing Channel or Zero level 2. Indirect Marketing Channel
Let us see the examples of each: ? 0 Level : Also called Direct Marketing Channel Producer ??????????????????????Consumer E.g. Eureka Forbes
Indirect Marketing Channels can be further classified depending on the number of intermediaries: ? 1 Level Producer ???????Distributor / Retailer???????Consumer E.g. Most commercial products, perishable items - milk, bakery etc. 2 Level Producer ????Wholesaler???Retailer????Consumer E.g. Distribution of drugs, FMCG, etc. 3 Level Producer ??Distributor??Wholesaler??Retailer??Consumer E.g. Convenience products, appliances etc. 4 Level Producer?Agent?Distributor?Wholesaler?Retailer?Consumer E.g. Consumer durable products, etc.
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1.9.4 Importance (Need) of Distribution Channels It is impossible for a company to handle all aspects of distribution including shipping, reselling, promotion, etc. by themselves and they would definitely need the services of other channel partners. The importance of the distribution channels is because of the numerous benefits they add to the consumer experience of buying a product: 1. The different channel partners are specialist in their own areas and they help to bring down the costs along with providing best of service to the customers. 2. The channel members perform their job more rapidly resulting in faster product delivery. It also helps that the channel members like shipping companies can collect goods from different companies and provides it to the target destinations. 3. By handing over the responsibility of some of functions to channel intermediaries, the manufacturers are themselves able to concentrate on their core business. 4. The channel members like retailers help the customers to get all the products they want conveniently at a single location. 5. Resellers can help you to generate demand and create sales by marketing and educating the customers about your product 6. Some channel partner offer financial support to the customers by providing purchase on credit, easy instalment plans, etc.
1.9.5 Challenges of Distribution Channels 1. Sometimes the cost of different channel partners may start spiraling upwards due to various issues. 2. The manufacturer has no control on the communication about his products and has to depend on how the retailers project the products. 3. The overall success of the product would not depend on just the quality of the product but also how fast the product is provided, the buying experience of the customer, etc. which in turn is dependent on the efficiency of the channel intermediaries.
1.10 Components of designing Sales Management System
Consider a simple scenario where ABC computers is providing multiple quotations to its multiple buyers about the different computers it has to offer. ABC computers can raise multiple bills or raise multiple sales orders. Buyers can themselves place multiple sales orders.
Figure 8: Entity Relationship Diagram
The different entities of a Sales Management System supporting the above ER diagram would be: Customer Data Element Customer_id Name Gender Date_of_birth E-mail Data Type Autonumber Text Text Date/Time Text Size 10 50 1 40 Description Primary Key Customer name Customer gender Customer date of birth Customer e-mail Validation No duplicate M/F dd/mm/yyyy e-mail format
Passport no. Password Phone Affiliate Data Element Affiliate_id Name Phone E-mail Password Service
Text Text Text
10 20 15
Customer/Passport Customer Password Customer phone no.
Number
Data Type Autonumber Text Text Text Text Text
Size 10 50 15 40 20 30
Description Primary Key Affiliate name Affiliate phone no. Affiliate e-mail Affiliate Password Affiliate service
Validation No duplicate Number e-mail format -
company‘s -
Order Data Element Order_id Date Customer_id Affiliate_id Payment_id Schedule Data Element Schedule_id Date Available Data Type Autonumber Date/Time Text Size 10 30 Description Primary Key Available date Affiliate company available on a date Validation No duplicate dd/mm/yyyy Data Type Autonumber Date/Time Integer Integer Integer Size 10 10 10 10 Description Primary Key Order‘s date Customer‘s id Affiliate id Order‘s payment id Validation No duplicate dd/mm/yyyy Valid id Valid id Valid id
Payment Data Element Payment_id Type Status Due date Amount Customer_id Goods Data Element Data Type Size Description Validation Data Type Autonumber Text Text Date/time Number Integer Size 10 10 50 10 10 Description Primary Key Payment type Payment Status Payment due date Amount of payment Customer‘s id Validation No duplicate dd/mm/yyyy Numeric Valid id
Goods_id Goods_type Goods_name Goods_cost
Autonumber Text Text Number
10 10 50 10
Primary Key Goods type Goods name Goods cost
No duplicate -
Bills Data Element Bill_no Bill_date Customer_id Item name Qty Rate Amount Data Type Autonumber Date/Time Integer Text Integer Number Number Size 10 10 50 10 10 10 Description Primary Key Bill date Customer‘s id Item name Qty Rate Amount Validation No duplicate dd/mm/yyyy Valid id -
Quotation Data Element Quotation_no Quote_date Customer_id Item name Qty Rate Amount Data Type Autonumber Date/Time Integer Text Integer Number Number Size 10 10 50 10 10 10 Description Primary Key Quotation date Customer‘s id Item name Qty Rate Amount Validation No duplicate dd/mm/yyyy Valid id -
1.11 Case Study on Sales and Distribution Management System
Problem Statement:
?Glaxo Pvt. Ltd.? is an antibiotic manufacturing company located at Nashik that deals with production
and sale of medicines. The sales and order processing department of the company deals with the sale of medicines to different medical shops within Pune, as well as to medical shops outside Pune. The order processing for medical shops outside the city is done through dealers. Each city has three dealers, who accept orders from the medical shops within their area and forward it to the sales department of Glaxo. The medicines are sent to the dealer site and from there it is distributed to the corresponding medical shops. It has been found that, there is a lot of time lapse, between the placing of orders and obtaining the medicines, for the medical shops outside Pune. Due to this, most of the medicines remain out of stock for a longer time, in these shops. Suggest a suitable business process, to model the above situation, so that
order processing for medical shops outside Pune can be faster, even though it has to go through a dealer (as per the sale rules of Glaxo). Specify the different input documents (detailed documents) that are necessary for your specified business process and also suggest any supporting reports that can be obtained from your specified business process. (Apr 11) Approach to solve the Case Study: The Case Study deals with improvement of the Sales and Distribution Management System for a company. 1. First collect the direct stated facts: ? ?Glaxo Pvt. Ltd.?sells its products through its dealers ? There is lot of time lapse, between the placing of orders and obtaining the medicines ? The effect is medicines remain out of stock and the overall sale is reduced 2. Then collect the unstated facts: ? The new order processing system needs to be put in place ? Also a system has to be put in place to keep a track of all the dealers and their stocks/bills receivable needs to be improved 3. Specify the input documents that can be used to improve the process. Draw the document formats wherever possible: ? Glaxomust provide a standard Quotation to the dealers specifying the exact terms and conditions (provide standard Quotation format) ? Each of dealers should use a standard Purchase Order form to provide the order (provide standard Purchase Order format) ? Glaxomust use the Purchase Order form to convert into a Sales order as well as generate an Invoice (provide standard Sales Order and Invoice format) ? Dealers must maintain inventory and Glaxo must provide ideal inventory levels when the dealers must raise a purchase order 4. List output reports which can be generated from the Sales and Distribution Management System like: ? List of orders received with details ? Total quantity of different products required on periodic basis ? Status of delivery and payment
1.12 Exercise
Answer in brief (1-2 lines): 1. What is market segmentation? (Apr 12)(Refer 1.2.1) 2. Define Product. (Refer 1.1) 3. What are the Consumer Products? (Refer 1.1) 4. Define Enquiry. (Refer 1.4.1) 1 mark
5. 6. 7. 8. 9. 10. 11. 12. 14. 15. 16. 17.
Define Quotation. (Oct 11) (Refer 1.4.2) Define Pricelist. (Refer 1.1) Define Catalogue. (Refer 1.1) Explain Firm Order. (Refer 1.1) Define Price Current. (Refer1.1) Explain Expense incurred. (Refer 1.1) Define Order. (Refer 1.1 ) What is sales analysis?(Apr 12) (Refer 1.7) Give benefits of market segments. (Oct 11) (Refer 1.2.1.1) What is the content of quotation? (Apr 11) (Refer 1.4.2) What is the objective of sales analysis?(Apr 11) (Refer 1.7 & 1.7.1) Write the features of Quotation.(Apr 12) (Refer 1.4.2)
13. Explain Pending Customer orders. (Refer 1.6)
Write Short Notes: 3 marks 1. Geographical Segmentation (Refer 1.2.2.1) 2. Demographic Segmentation (Refer 1.2.2.2) 3. Psychological Segmentation (Refer 1.2.2.3) 4. Consumer Products (Refer 1.2.3) 5. Enquiry (Refer 1.4.1) 6. Order Placing (Refer 1.5) 7. Pending Customer Order (Refer 1.6) 8. Order Procurement (Refer 1.5) 9. Purchase Order (Refer 1.5.1) 10. Sales Order (Refer 1.5.2) 11. Invoice (Refer 1.5.3) 12. Give the report layout structure of ?purchase order?.(Oct 11) (Refer 1.5.1) 13. A company is having main office at Mumbai which controls the sale of their product in south, east, west and north zone. At the end of each financial year they collect the information of targeted sale and actual sale from each zone. Define a structure for the report (textual or graphical) which represents the sales analysis at four zones. (Oct 11) (Refer 1.7.1)
Answer the following in detail: 1. What is Sales Management? Explain its functions in detail.(Oct 11) (Refer 1.8 & 1.8.1) 2. What are the factors considered while formulating Sales Budget? (Refer 1.2) 3. Pending orders need to be attended promptly. Explain. (Refer 1.6 & 1.6.1) 4. Explain Sales Analysis. (Refer 1.7 & 1.7.1 & 1.7.2) 5. Explain the benefits of Market Segmentation? (Oct 11, Apr 12) (Refer 1.2.1) 6. Describe the classification of Consumer Segmentation? (Refer 1.2.2)
5 marks
7. What is the main function of Sales Management System? List any four key decision areas of sales management. (Refer 1.8.1) 8. What is market segment? State the factors, based on which market segmentation is done. (Refer 1.2.1) 9. What is a budget? What is sales budget? (Refer 1.2) 10. Explain the process of computerized sales analysis? (Refer 1.7.2) 11. What do you mean by Sales Forecasting? (Refer 1.2) 12. What is channel management? Explain with examples different types of channel. (Refer 1.9.1 & 1.9.2) 13. What do you mean by enquiry? Explain the functioning of the Enquiry Management System. What is reply to enquiry called? (Refer 1.3) 14. Define quotation. Write the features of quotation? What are the essential things to be specified while writing the quotation? (Refer 1.4.2) 15. Briefly explain the processing of customer order processing. (Apr 12) (Refer 1.5) 16. List the principles of Sales Management. (Refer 1.8.3)
2
HUMAN RESOURCE MANAGEMENT SYSTEM
Objective: Human resource is most important resource of every organization. The objective of this chapter is to understand the different aspects like functions of human resource manager, employee recruitment, training, appraisal, leave accounting and payroll which are effectively managed by a using Human Resource Management System.
2.1 Introduction
Human Resource Management is the organizational function that deals with issues related to people such as compensation, hiring, performance management, organization development, safety, wellness, benefits, employee motivation, communication, administration and training. Let us what an organization is, what are departments, reporting structures, employees and positions using an example.
Figure 9: Organization, Department and Sub-department
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Organization: It is a company, business, firm or association. In our example, it is ?ABC Car Manufacturers‘. Departments: To manage an organization in better manner, it is further sub divides into functional units, where people of specific skills work in the respective zones. This functional classification is called as department. E.g. A computer engineer would work in the IT department of ABC Car Manufacturers. Sub-departments: To manage a department, the department separates itself into still easier manageable level called Sub-departments. E.g. IT department simplifies its levels by dividing the department in 3 special skills (Software, Hardware, Network Support)
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2.1.1 Organizational Structure Chart The graphical representation of the organizations hierarchy with the departments, positions and reporting structure is called the Organization Structure Chart. For example, the chart for ABC Car Manufacturers will be as below:
Figure 10: Organization Structure Chart
2.1.2 Introduction to Human Resource Management Edwin Flippo defines HRM as ?planning, organizing, directing, controlling of procurement, development, compensation, integration, maintenance and separation of human resources to the end that individual, organizational and social objectives are achieved.? Features of HRM 1. HRM involves management functions like planning, organizing, directing and controlling. 2. It involves procurement, development, maintenance of human resource. 3. It helps to achieve individual, organizational and social objectives. 4. HRM is a very disciplinary subject. It includes the study of management psychology, communication, economics and sociology. 5. It involves team spirit and teamwork.
2.1.3 Evolution of HRM The evolution of HRM can be traced back to Kautilya Artha Shastra where he recommends that government must take active interest in public and private enterprise. He says that government must provide a proper procedure for regulating employee and employee relation. In the medieval times, there were examples of kings like Allaudin Khilji who regulated the market, charged fixed prices and provided fixed salaries to their people. This was done to fight inflation and provide a decent standard of living During the pre-independence period of 1920, the trade union emerged. Many authors who have given the history of HRM say that HRM started because of trade union and the First World War. The Royal commission in 1931 recommended the appointment of a labor welfare officer to look into the grievances of workers. The factory act of 1942 made it compulsory to appoint labor welfare officer if the factory had 500 or more than 500 workers. The international institute of personnel management and national institute of labor management were set up to look into problems faced by workers to provide solutions to them. The Second World War created awareness regarding workers‘ rights and 1940‘s to 1960‘s saw the introduction of new technology to help workers. The 1960‘s extended the scope of human resource beyond welfare. Now it was a combination of welfare, industrial relation and administration together and it was called personnel management.
With the second 5-year plan, heavy industries started and professional management became important. In the 1970‘s the focus was on efficiency of labor while in the 1980‘s the focus was on new technology, making it necessary for new rules and regulations. In the 1990‘s the emphasis was on human values and development of people and with liberalization and changing type of working people became more and more important there by leading to HRM which is an advancement of personnel management.
2.1.4 Scope (Functions) of HRM The scope of HRM refers to all the activities that come under the banner of HRM. These activities are as follows:
1. Human resources planning
Human resource planning or HRP refers to a process by which the company to identify the number of jobs vacant, whether the company has excess staff or shortage of staff and to deal with this excess or shortage.
2. Job analysis
Job analysis gives a detailed explanation about each job in the company. Based on this job analysis the company prepares advertisements.
3. Recruitment and Selection
Based on information collected from job analysis the company prepares advertisements and publishes them in the newspapers. This is recruitment. A number of applications are received after the advertisement is published, interviews are conducted and the right employee is selected.
4. Orientation and induction
Once the employees have been selected, an induction or orientation program is conducted. The employees are informed about the background of the company, explained about the organizational culture, values, work ethics and introduced to the other employees.
5. Training and Development
Every employee goes under training program that helps him to put up a better performance on the job. Training program is also conducted for existing staff that have a lot of experience. This is called refresher training. Training and development is one area where the company spends a huge amount.
6. Performance appraisal
Once the employee has put in around one year of service, performance appraisal is conducted that is the HR department checks the performance of the employee. Based on these appraisal future promotions, incentives, increments in salary are decided.
7. Compensation planning and remuneration
There are various rules regarding compensation and other benefits. It is the job of the HR department to look into remuneration and compensation planning.
8. Motivation, welfare, health and safety
Motivation becomes important to sustain the number of employees in the company. It is the job of the HR department to look into the different methods of motivation. Apart from this, certain health and safety regulations have to be followed for the benefits of the employees. The HR department also handles this.
9. Industrial relation
Another important area of HRM is maintaining co-ordinal relations with the union members. This will help the organization to prevent strikes lockouts and ensure smooth working in the company.
2.1.5
Challenges before the HR manager
1. 2. 3. 4. 5. 6. 7.
Retention of the employees Multicultural work force Retrenchment for employees Changes in demand of government Initiating the process of change Changing the method of working Changing the attitude of people
2.1.6 Significance (Need) of HRM HRM becomes significant for business organization due to the following reasons:
1. Objective HRM helps a company to achieve its objective from time to time by creating a positive attitude among workers reducing wastage and making maximum use of resources. 2. Facilitates professional growth
Due to proper HR policies, employees are trained well and this makes them ready for future promotions. Their talent can be utilized not only in the company in which they are currently working but also in other companies that the employees may join in the future.
3. Better relations between union and management
Healthy HRM practices can help the organization to maintain co-ordinal relationship with the unions. Union members start realizing that the company is also interested in the workers and will not go against them therefore chances of going on strike are greatly reduced.
4. Helps an individual to work in a team/group
Effective HR practices teach individuals teamwork and adjustment. The individuals are comfortable while working in team that improves the output of the team.
5. Identifies person for the future
Since employees are constantly trained, they are ready to meet the job requirements. The company is also able to identify potential employees who can be promoted in the future for the top-level jobs. Thus, one of the advantages of HRM is preparing people for the future.
6. Allocating the jobs to the right person
If proper recruitment and selection methods are followed, the company will be able to select the right people for the right job. When this happens, the number of people leaving the job will reduce, as the people will be satisfied with their job leading to decrease in labor turnover.
7. Improves the economy
Effective HR practices lead to higher profits and better performance by companies. Due to this, the company may get a chance to enter into new business or start new venture thus industrial development increases and the economy improves. 2.1.7 Human Resource Management Systems (HRMS) HRMS provide a link between human resource management and information technology. It allows enterprises to automate many aspects of human resource management, with the dual benefits of reducing the workload of the HR department as well as increasing the efficiency of the department by standardizing HR processes. HRMS convert human resources information into a digital format, allowing
that information to be added to the knowledge management systems of the enterprise. The result of this is that HR data can be integrated into the larger Enterprise Resource Planning (ERP) systems of the enterprise. Data related to the time usage of the workforce can enhance the decision making abilities of management, allowing the HR department to form an integral aspect of strategy formation for the enterprise as a whole.
2.2 Employee Database and Knowledge Management System
2.2.1 Employee A person who is hired to provide services to a company on a regular basis in exchange for compensation and who does not provide these services as part of an independent business. In short a person who works in an organization in return for compensation (money). 2.2.2 Employee Database Database means collection of number of records. Employee database is the master data maintained by the HR department of an organization. The database components comprise of the following information:
1. Employee personal Details a. Employee ID b. Name (First /Middle/ Last) c. Address (Temporary/Permanent/Contact Numbers/Emergency Contacts) d. Misc. Details: Gender / Age e. Qualifications/Experience History Details f. Dependents(Family data - Spouse/Parents/Children) 2. Employee Organizational Details a. Department b. Reporting c. Time data d. Work Schedule 3. Employee Accounts Data a. Wage Components- Reimbursements/Allowances/Perks b. Bank Details- Salary transfers and monetary transactions c. Tax Structure and other statutory benefits-DA/Gratuity/PF etc. 4. Employee Other data a. Appraisal b. Training c. Travel
2.2.2.1 Employee personal Details ? Employee ID: This is like the roll number. It is a unique key to identify the employee details. ? ? ? Employee Name: Is filled as First/Middle/Last name, sequence as defined by the HR department. Address: An address field is required in case of correspondence to the employee/relatives of the employee. Generally Temporary and Permanent both addresses are maintained. Contact Numbers: These are telephone/mobile numbers in case HR Department needs to contact the employee. In addition, HR maintains Emergency contact numbers, e.g. mobile number of close people to the employee, for contact in emergencies. ? Miscellaneous Details: Gender filled as in Male/Female: Required for taxation purpose, as Income tax slab differ respectively. To manage shifts, generally female employees could be excluded from Night shifts etc. Age is recorded to maintain seniority, calculate retirement age, provide benefits schemes like medical insurance etc. Qualifications and Experience summary: This is recorded for appraisal purpose. Qualifications help in choosing trainings to employees, fit in desired positions vacant in the organization. Experience helps in navigating the person to correct position in the hierarchy, e.g. a Computer Engineer with 5 years‘ experience will be taken to lead a team of five Computer graduate fresher entering the department. Dependents: This is filled for insurance or beneficiary purposes.
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2.2.2.2 Employee Organization Details ? Department/Reporting Structure: This is the maintained for the organizations reporting part. It shows exactly where the employee is what is the department he is working in, what is his position and whom does he report to. ? Time Data/Work Schedule: As a part of discipline and smooth working process, an employee is assigned with a time of reporting, i.e. his working schedule comprising of: a. Time In: At what time the employee reports to work in the office b. Break: Teatime, Lunch etc. c. Time Out: At what time the employee can leave office for home d. Day Schedule: Which days the employee can come for work and when is the weekly off Other than this, he is entitled for some leaves, in case of sickness, personal work or unavoidable emergencies. These are called as Leaves. Such data is vital and needed for calculating the payments of an employee.
2.2.2.3 Employee Accounts Data This data is required to calculate the salary components like Basic, Dearness Allowance, Reimbursements, Allowances, Perks, Tax and Bonus etc. of an employee. This data is fed once in a system. Therefore, his monthly salary calculations are automated depending on the time data provided.
2.2.2.4 Employee other data This includes all additional data updated from time to time related to employees travel, trainings, appraisal, etc. Thus, employee data is stored in and available at all times in the database, since it is necessary according to statutory demands, to account and audit the manpower of an organization.
2.2.3 Knowledge Management System Knowledge Management (KM) comprises a range of strategies and practices used in an organization to identify, create, represent, distribute and enable adoption of insights and experiences. Such insights and experiences comprise knowledge, either embodied in individuals or embedded in organizations as processes or practices. The employee database helps in retrieving various reports for the management combined with the human experts that help to gather insights from the reports, collectively known as knowledge management system. This is the first step towards maintaining an efficient HRMS for an organization. The HR department generally is responsible to keep such details and furnish it as and when required.
2.3 Recruitment – Technique
Recruitment refers to the process of attracting, screening and selecting qualified people for a job at an organization or firm. (Apr 12) Example: Consider a case of one company where one of manager resigns and leaves the job. A vacancy is thus created and there is a requirement to fill the position. Such an action leads for a Recruitment process. 2.3.1 Recruitment process (Apr 11) The recruitment process starts with a creation of position within an organisation and ends with a suitable candidate being placed at the particular position. The entire process consists of following steps: 1st Step: Sourcing and screening In the first step, the suitable candidates are attracted by the organisation and unsuitable candidates filtered out. There are different ways by which the organisation can source the candidates: 1. Advertising: Prospective candidates are notified by the means of advertisement in the newspapers, online portals and other networking sources. E.g. Ascent, a part of the Times of India every Wednesday, websites like naukri.com, timesjobs.com, monster.com etc. 2. Job Fairs: For entry-level jobs, job fairs can help you recruit fresh graduates and individuals who want to change careers. Some colleges and universities sponsor on-campus job fairs. They also provide an easy way to collect resumes to help fill future vacancies. 3. Existing Database: This can be maintained based on resumes collected at job fairs, from your website or from manual submissions. The database can contain relevant information, which you can
4.
5.
6.
7.
use to filter and find suitable resumes. This recruitment method can help fill vacancies faster at a lower overall cost than starting a fresh recruiting effort. Employment Agencies: These are very useful for hiring employees with specialized skills and senior level. The initial cost of utilizing an employment agency may be high but the long-term reward of a well-placed, highly capable employee can be greater than the initial recruitment cost. Internal Recruiting or Transfer: Existing employees have an established record of accomplishment that can be matched to a current vacancy. Even if the employee needs some additional training to fulfill all the position requirements, companies gain valuable employee relation benefits by hiring from within. This can be in form of transfers and promotions. Employee Referrals: Existing employees can be a great source of providing recruitment referrals. Encouragement can be provided for employee referrals by providing bonuses to employees for all new hires employed based on a referral. Other Sources: Campus selection (college placements), at factory gate, employment exchange can be additional sources of recruitment. Expressions of Interest (EOI):
2nd Step:
Prospective candidates submit their EOI by mailing their resumes or giving a call, which means that they are interested in the position. 3rd Step: Evaluation of Job Profile
This step defines the specifications for kind of qualities, experience, etc. are required from the desired candidate. Sometimes a document called Job Description is prepared to define the Job Profile. 4th Step: Candidate information and shortlisting
The recruiter checks the resumes in which they check out the person's experience, his current designation, project background, skills, talent, education, expected salary, etc. Amongst them few resumes are selected which closely match with the profile of the position, called as initial short listing. 5th Step: Test and/or interview
The shortlisted candidates are then given a call to come for the test and/or interview on a given date and time. There could be multiple rounds of interview based the corporate and position. The interviews are to find the most suitable candidate depending on the decided set of parameters. 6th Step: References, background check, medical tests
Through investigation is performed to check the background of the candidate. In addition, he may be asked to submit references from his previous employers. Most organizations also ask for a medical certificate from the candidates. 7th Step: Offer Letter and Appointment
The most favorable shortlisted candidate would be asked to join. The HR would offer a salary package and other benefits and explain work environment and company policies. If the employee finds the offer lucrative, he accepts the offer and the HR appoints the candidate and provides him with a date of joining.
Figure 11: Recruitment Process
2.3.2
Recruitment objectives
1. Support the organization ability to acquire, retain and develop the best talent and skills. 2. Determine present and future manpower requirements of the organization in coordination with planning and job analysis activities. 3. Obtain the number and quality of employees that can be selected in order to help the organization to achieve its goals and objectives. 4. Create a pool of candidates so that the management can select the right candidate for the right job from this pool. 5. Attract and encourage more and more candidates to apply in the organization. 6. Increase the pool of candidates at minimum cost. 7. Acts as a link between the employers and the job seekers. 8. Infuse fresh blood at all levels of the organization. 9. Meet the organization's legal and social obligations regarding the composition of its workforce. 10. Increase the effectiveness of various recruiting techniques.
2.3.3 Factors affecting Recruitment Internal factors, which are in control of an organisation, as well as external factors, which are beyond the control, can affect recruitment. 2.3.3.1 External factors 1. Supply And Demand: The availability of manpower both within and outside the organization is an important determinant in the recruitment process. If the supply is high, it will be easy for an organization to make recruitments. 2. Labour Market: Employment conditions in the community where the organization is located will influence the recruiting efforts of the organization. 3. Image / Goodwill: Image of the employer can work as a potential constraint for recruitment. An organization with positive image and goodwill as an employer finds it easier to attract and retain employees than an organization with negative image. 4. Political-Social- Legal Environment: Various government regulations prohibiting discrimination in hiring and employment have direct impact on recruitment practices. For example, Government of India has introduced legislation for reservation in employment for scheduled castes, scheduled tribes, physically handicapped etc. in government sector jobs. In addition, trade unions play important role in recruitment. This restricts management freedom to select those individuals who it believes would be the best performers. 5. Unemployment rate: One of the factors that influence the availability of applicants is overall unemployment rate in the country. 6. Competitors: The recruitment policies of the competitors also affect the recruitments. To face the competition, many a times the organizations have to change their recruitment policies according to the policies being followed by the competitors. 2.3.3.2 Internal factors (Oct 11)
1. Recruitment Policy: The recruitment policy of an organisation specifies the objectives of recruitment and provides a framework for implementation of recruitment program. 2. Human Resource Planning: Effective human resource planning helps in determining the gaps present in the existing manpower of the organization. It also helps in determining the number of employees to be recruited and what qualification they must possess. 3. Size of the firm: Depending on the size of the firm, the nature of recruitment may vary. For e.g. smaller firms may depend more on employee referrals while larger firms may employ a recruitment agency. 4. Cost: Recruitment incur cost to the employer, therefore, organizations try to employ that source of recruitment, which will bear a lower cost of recruitment to the organization for each candidate. 5. Growth and Expansion: Organization will employ or think of employing more personnel if it is expanding its operations. 2.3.4 Sources of Recruitment There are number of sources that can fulfill an organizations requirement for suitable manpower. The cheapest and best available source is used by an organization in a given situation. Most organizations use more than one source for their requirements. 2.3.4.1 Internal Sources
1. Transfers: The employees are transferred from one department to another according to the requirement and suitability of the employee for the role. 2. Promotions or Demotions: The employees are promoted with more benefits and greater responsibility based on efficiency and experience. Alternatively, they could also be demoted for lack of performance. 3. Retired and retrenched employees: They may be recruited once again in case of shortage of qualified personnel or increase in load of work. 4. Dependents or relatives of deceased or disabled employees: They may be provided the job in place of an existing employee.
2.3.4.2 External Sources
1. Press advertisements: Advertisements of the vacancy in newspapers and journals are a widely used source of recruitment. The main advantage of this method is that it has a wide reach. 2. Educational institutes: Various management institutes, engineering colleges, medical colleges etc. are a good source of recruiting well-qualified executives, engineers, medical staff etc. They provide facilities for campus interviews and placements. This source is also known as campus recruitment. 3. Placement agencies: Several private consultancy firms perform recruitment functions on behalf of client companies by charging a fee. These agencies are particularly suitable for recruitment of executives and specialists. 4. Employment exchanges: Government establishes public employment exchanges throughout the country. These exchanges provide job information to job seekers and help employers in identifying suitable candidates.
5. Labour contractors: Manual workers can be recruited through contractors who maintain close contacts with the sources of such workers. This source is used to recruit labor for construction jobs. 6. Unsolicited applicants: Many job seekers visit the office of well-known companies on their own. 7. Employee referrals: Many organizations have structured system where the current employees of the organisation can refer their friends and relatives for some position in their organisation. Current employees are suitably rewarded for providing the referrals. 8. Recruitment at Factory Gate: Unskilled workers may be recruited at the factory gate temporarily whenever a permanent worker is absent. More efficient among these may be recruited to fill permanent vacancies.
2.3.5 Purpose (Importance) of Recruitment 1. Attract and encourage more and more candidates to apply in the organisation. 2. Create a talent pool of candidates to enable the selection of best candidates for the organisation at minimum cost. 3. Determine present and future requirements of the organization in conjunction with its personnel planning and job analysis activities. 4. Help increase the success rate of selection process by decreasing number of visibly under qualified or overqualified job applicants. 5. Help reduce the probability that job applicants once recruited and selected will leave the organization only after a short period. 6. Meet the organizations legal and social obligations regarding the composition of its workforce. 7. Begin identifying and preparing potential job applicants who will be appropriate candidates. 8. Increase organization and individual effectiveness of various recruiting techniques and sources for all types of job applicants. 2.3.6 E-Recruitment Job portals (e.g. naukri.com, monster.com) are the latest trend that facilitates e-recruitment of potential candidates. The companies post the available positions with the job description and the job specification on the job portal. In addition, the job seekers can also post their resumes on such portals. Thus, job portals bring together the job seekers and the employers on a single platform and facilitate the recruitment process. Advantages of E-Recruitment are: 1. 2. 3. 4. 5. 6. Lower costs to the organisation as compared to other sources No intermediaries Reduction in the time for recruitment Facilitates the recruitment of right type of people with the required skills Improved efficiency of recruitment process Online recruitment helps the organizations to weed out the unqualified candidates in an automated way
7. Recruitment websites also provide valuable data and information regarding the compensation offered by the competitors etc. that helps the HR managers to take various HR decisions like promotions, salary trends in industry etc. Disadvantages of E-Recruitment are: 1. Screening and checking the skill mapping and authenticity of millions of resumes is a problem and time consuming exercise for organizations 2. E-Recruitment can be used only in few areas where the people are internet savvy
2.4 Employee Appraisal – Performance Efficiency
People differ in their abilities and their aptitudes. There is always some difference between the quality and quantity of the same work on the same job being done by two different people. Performance appraisals of employees are necessary to understand each employee‘s abilities, competencies and relative merit and worth for the organization. It is necessary to measure the performance of the employees and the organization to check the progress towards the desired goals and aims. Performance appraisal takes into account the past performance of the employees and focuses on the improvement of the future performance of the employees. It defines and measures the performance of the employees and the organisation as a whole. In fact, it is a tool for accessing the performance of the organisation as a whole. (Apr 11) It is important motivating factors for the employees, in the performance appraisal process is to receive a fair an accurate assessment of their performance. An employee always expects his appraiser to recognize and appreciate his achievements, support him to overcome the problems and failures.
2.4.1
Need (Objectives) for Appraisal
(Oct 11, Apr 11) 1. 2. 3. 4. 5. 6. To review the performance of the employees over a given period of time. To judge the gap between the actual and the desired performance. To help the management in exercising organizational control. To diagnose the training and development needs of the future. Provide information to assist in the HR decisions like promotions, transfers etc. Provide clarity of the expectations and responsibilities of the functions to be performed by the employees. 7. To judge the effectiveness of the other human resource functions of the organization such as recruitment, selection, training and development. 8. To reduce the grievances of the employees. 9. Helps to strengthen the relationship and communication between superior – subordinates and management – employees.
2.4.2
Commonly used Appraisal methods
1. Top-Down
In Top-Down appraisal method employee's immediate supervisor performs the evalutaion. This is very effective since manager is someone who works with that employee everyday and knows his or her strengths and weaknesses.
2. Peer-to-Peer
In Peer-to-Peer appraisal method employees at the same level to review each other. This could work effectively when the employees have the maturity to provide a honest and transparent feedback.
3. Self-Assessment
In Self-Assessment performance review employees are asked to rate themselves. It help make the employees an active part of the process and provide a vehicle for them to reflect on their own performance prior to the formal review. It is used in conjunction with other methods.
4. 360 Degree
In 360 Degree appraisal the feedback about the employees‘ performance comes from all the sources (peers, managers, subordinates, team members, customers, suppliers) that come in contact with the employee on his job. 360 degree appraisal has four integral components:
1. Self appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his achievements and judge his own performance. 2. Superior‘s appraisal forms the traditional part of the 360 degree performance appraisal where the employees‘ responsibilities and actual performance is rated by the superior. 3. Subordinates appraisal gives a chance to judge the employee on the parameters like communication and motivating abilities, superior‘s ability to delegate the work, leadership qualities etc. 4. Feedback given by peers can help to find employees‘ abilities to work in a team, co-operation and sensitivity towards others.
360 degree performance appraisal is also a powerful developmental tool because when conducted at regular intervals (e.g. yearly) it helps to keep a track of the changes others‘ perceptions about the employees. A 360 degree appraisal is generally found more suitable for the managers as it helps to assess their leadership and managing styles.
5. Rank and Yank strategy
It is also known as the ?Up or Out‘ policy.The Rank and Yank strategy refers to the performance appraisal model in which the employees are ranked from best-to-worst and poor performers are separated from the good performers. Thus, the employee is evaluated relative to performance of other employees. Then the
action plans and the improvement opportunities of the poor performers are discussed and they are given action plan to improve their performance in a given time period. 2.4.3 Performance Efficiency and Appraisals In modern times, appraisals are used to link compensation to performance. It is also known as ?Performance pay‘ or ?Performance based variable pay‘. It links the compensation of the employees to their performance and their contribution to the organizational goals. Commissions, incentives and bonuses, piece rate pay help the employer to pay the employee according to their productivity and hard work. The different steps as part of linking performance to the variable pay are as follows:
1. Establish performance standards
The first step in the process of performance appraisal is the setting up of the standards that will be used to as the base to compare the actual performance of the employees. The standards set should be clear, easily understandable and in measurable terms. The objectives set for the employee should be in line with the organizational objectives.
2. Communicate these standards to the employee
The employees should be informed and the standards should be clearly explained to the employees. This will help them to understand their roles and to know what exactly is expected from them.
3. Measure the actual performance
A continuous process involves monitoring the performance throughout the year. This stage requires the careful selection of the appropriate techniques of measurement. Different proofs substantiating the claim for the performance are collected as part of measuring the actual performance.
4. Compare actual performance against expected performance
The actual performance is compared with the desired or the standard performance. The comparison tells the deviations in the performance of the employees from the standards set. It includes recalling, evaluating and analyzing of data related to the employees‘ performance.
5. Discuss the results
The result of the appraisal is communicated and discussed with the employees on one-to-one basis. Constructive feedback for improvement areas as well as appreciation for excellent performance should be communicated during the discussion.
6. Decision Making
Required corrective actions or the HR decisions like rewards, promotions, demotions, transfers etc. are performed as part of last step of the process.
2.4.4
Types of Performance Pay
There are different types of performance pay that can be offered to the employees: ? Merit or variable pay – Some part of salary according to the position and the rank of the employee is set aside as variable part of the salary is based on the periodic performance reviews. Profit Sharing – Sharing the profits of the enterprise with the employees as bonus. Incentives and performance Bonus – Rewards for special accomplishments or fulfillment of the targets set such as sales commission. Gain sharing - Sharing of gains because of the increased performance of the employees with them.
? ? ?
2.4.5
Problems (Limitations) in Performance Appraisal (Apr 12)
1. Halo effect: In this case, the superior appraises the person on certain positive qualities only. The negative traits are not considered. Such an appraisal will not give a true picture about the employee. In some extreme cases, employees who do not deserve promotions may get it. 2. Horn effect: In this case only the negative qualities of the employee are considered and based on this appraisal is done. This again will not help the organization because such appraisal may not present a true picture about the employee. 3. Central tendency: In this case, the superior gives an appraisal by giving central values, as he may not be able to arrive at a correct value. This prevents a talented employee from getting promotions he deserves and some employees who do not deserve anything may get promotion. 4. Leniency and strictness: Some bosses are lenient in grading their employees while some are very strict. Employee who really deserves promotions may lose the opportunity due to strict bosses while those who may not deserve may get benefits due to lenient boss. 5. Spillover effect: in this case, the boss depending upon the past performance judges the employee positively or negatively. Therefore, although the employee may have improved performance, he may still not get the benefit. 6. Fear of losing subordinates and spoiling relations: Many bosses do not wish to spoil their relations with their subordinates. Therefore, when they appraise the employee they may end up giving higher grades that are not required. This is an injustice to really deserving employees
2.5 Employee Training
Training is an effective way to train and develop, impart new skills, improve efficiency and retain the employees.
2.5.1 Objectives of Training The principal objective of training and development division is to make sure the availability of a skilled and willing workforce to an organization. In addition to that, there are four other objectives:
1. Individual objectives: Training helps employees in achieving their personal goals, which in turn, enhances the individual‘s contribution to an organization. 2. Organizational objectives: Training assists the organization with its primary objective by bringing individual effectiveness. 3. Functional objectives: Training maintains the department‘s contribution at a level suitable to the organization‘s needs. 4. Societal objectives: Training also ensures that an organization is ethically and socially responsible to the needs and challenges of the society.
2.5.2 Assessing Training needs It is important to assess training needs to find common training programs for a group of employees. Training needs can be assessed by simple method such as asking an employee what they would like to be able to do better or as complex as developing an individualized training plan for every employee. Conducting a simple training need assessment survey can also help to understand the needs of the employees.
2.5.3 Training methods Training can be classroom training or on-the job training. Some of the methods of training are: Classroom training:
1. 2. 3. 4. 5. 6.
Lectures Labs or Demonstration Distance Learning E-Learning (Computer Based Training (CBT)) Seminars/Workshops or Discussions Simulations
On-the-job (OTJ) training: 1. Mentoring 2. Coaching 3. Job Rotation
2.5.3.1 Classroom training The basic premise of classroom-based training is that there is special environment and effort created for training. Thus, it is more focused form of training with different methods to achieve the training objective: 1. Lectures It is in form of classroom lectures or offsite training, usually to teach the theoretical part of the job. It may not be very effective unless accompanied by on-the-job training. Lectures are used because of their low cost and their capacity to reach many people. 2. Labs or Demonstration In this form of training, the trainer provides a visual display of how something works or how to do something. It is sometimes conducted in a specially created environment or a lab. It is generally costly form of training used only for special purpose programs. 3. Distance Learning Distance education or distance learning is a field of education that focuses on teaching methods and technology with the aim of delivering teaching, often on an individual basis, to students who are not physically present in a traditional educational setting such as a classroom. 4. E-Learning (Computer Based Training (CBT)) E Learning (also called CBT (Computer-Based Training), IBT (Internet-Based Training) or WBT (WebBased Training)) is the computer and network-enabled transfer of skills and knowledge. E-Learning applications and processes include web-based learning, computer-based learning, virtual education opportunities and digital collaboration. Content is delivered via the Internet, intranet/extranet, audio or video tape, satellite TV and CD-ROM. It can be self-paced or instructor-led and includes media in the form of text, image, animation, streaming video and audio. 5. Seminars/Workshops or Discussions Seminars or Workshops are simply a group of people coming together for the discussion and learning of specific techniques and topics. Usually there are several keynote speakers within each seminar and these speakers are usually experts in their own fields or topics. 6. Simulations Training simulations replicate the essential characteristics of the real world that are necessary to produce both learning and the transfer of new knowledge and skills to application settings. Both machine and other forms of simulators exist. We simulate for a number of reasons, including controlling the training environment, for safety, to introduce feedback and other learning principles and to reduce cost.
2.5.3.2 On-the-job training It is usually impossible to teach someone everything she needs to know at a location away from the workplace. Thus, on-the-job training often supplements other kinds of training, e.g., classroom or off-site training. Because of its informal and unfocussed nature, the trainee may not learn all the aspects of the job: 1. Mentoring It is an ongoing relationship between a mentor (generally a senior) and a mentee (generally a junior) where the mentor provides guidance and assistance on organizations mission, vision, processes, procedures, etc. 2. Coaching Coaching is used to improve the performance of the employee with one to one interaction. The coach provides a personalized training plan for the coachee who receives a regular feedback for improvement in knowledge, skill and attitude. 3. Job Rotation This approach allows an employee to operate in diverse roles and understand different issues that crop up. It also provides the employees with opportunities to broaden the horizon of knowledge, skills and abilities by working in different departments, business units, functions and countries. 2.5.4 Ways to make Training effective
(Apr 12) 1. Motivate and familiarize: The first task should be to enable the trainees to see a need to change, a need to learn and apply the new skills. You can start your training with the consequences of failing to possess the skill. 2. Check people out on the basic skill required for learning the new skill: Certain basic skills are a prerequisite to learning other skills. You need to check if the trainees possess the prerequisite skills. For example, unless someone knows how to add and subtract, you cannot teach him or her how to balance a checkbook. 3. Teach the specific skills of the task: With mastery of the basic skills, your employees are now ready to learn specific skills. They need to be taught specific skills that will help them to perform their job effectively. 4. Teach mastery skills: Once your employees have learned the simple things, they are now ready to advance to the more complex things. There should be gradual progress in levels of learning. 5. Provide an opportunity for immediate application: Whatever skill you teach, arrange for your employees to apply/use the new skill on the job immediately after the completion of training. 6. Repetition and review are the foundation of learning: There is no substitute for repetition. Repetition is the foundation of learning. 7. Focus on the basics: When we make this mistake, it is usually because we have become bored with the ?basics? or because we actually have become arrogant and we‘ve begun thinking that we don‘t need to focus on the basic.
8. You must entertain to educate: If training is not interesting and entertaining, some people will not participate and those who will participate do not realize much in the way of benefits from the training. The more entertaining a class or training session is, the more it will be remembered and implemented.
2.5.5 Benefits from Training and Development
1. 2. 3. 4. 5. 6. 7. 8.
Increased job satisfaction and morale among employees Increased employee motivation Increased efficiencies in processes, resulting in financial gain Increased capacity to adopt new technologies and methods Increased innovation in strategies and products Reduced employee turnover Enhanced company image, e.g. being known as a progressive organisation Risk management, e.g. training about sexual harassment, diversity training
2.5.6
Training Process
1st Step:
Establish need for training
The needs analysis is the starting point for all training. This step identifies activities to justify an investment for training. The techniques necessary for the data collection are surveys, observations, interviews, etc. Several examples of an analysis outlining specific training needs are customer dissatisfaction, low morale, low productivity and high turnover. By determining training needs, an organization can decide what specific knowledge, skills and attitudes are needed to improve the employee‘s performance in accordance with the company‘s standards.
2nd Step:
Developing training programs and manuals
Standard training programs and manuals based on the needs established in first step needs to be designed. In addition, the procedure to deliver the trainings is established. Sometimes external vendors can also act as source for training programs.
3rd Step:
Conduct the training program
In this step the instruction and delivery of the training program is complete. Once you have designated your trainers, the training technique must be decided. The trainer should have the skills, knowledge, motivation and passion to teach.
4th Step:
Evaluate the training program
This step determines how effective and profitable your training program has been. Some of methods for evaluation are post training survey, cost/benefit analysis outlining your expenses and returns and an increase in customer satisfaction and profits. This step will indicate the effectiveness of both the training as well as the trainer. Evaluations are an efficient way to determine the overall effectiveness of the training program for the employees as well as the organization.
2.6 Leave Accounting and Payroll
Leaves are voluntary time off taken by employees to complete their personal work, sickness, vacation, etc. It is important that employee leaves be managed properly without the organizational goals getting affected negatively. It is also important to provide sufficient leaves to the employees.
2.6.1 Leaves Policy
Every organization decides on a policy to manage the leaves. There are variations in the types of leaves depending on type of organization. Thus, there are different policies in the government departments, public sectors/private sectors, large corporations, SME‘s etc.
Following is an indicative list of general types of leaves: (Apr 11)
? ? ? ? ? ?
Sick leaves [6-8] days Casual leaves [10-12] days Earned [paid] leaves [10-12] days National holidays [11-12] days Maternity leaves [135-180] days Paternity leaves[2-15] days
Leaves Application
2.6.2
It is important to follow a process for application and managing of leaves. Numbers of organizations are using an automated software application for management of leaves. The process starts with application of leave by the employee. If the employee has no balance left, he is asked to pay a Leave Without Pay (LWOP). Else, his application is sent to the manager for approval. The manager can decide to approve or disapprove the leave, depending on which the leave records are updated. The entire process can be shown in form of flowchart as follows:
Figure 12: Leaves Application Process
2.6.3 Payroll Payroll is the summary of all financial records of salaries for an employee, wages, bonuses and deductions. Payroll and payroll taxes considerably affect the net income of most companies and they are subject to laws and regulations. Payroll is a critical department as employees are responsive to payroll errors and irregularities. It is important for payroll to be paid timely and accurately. Some of the organizations use the traditional manual method of payroll processing and some go for the advanced payroll processing software. An organization opts for any of the following payroll processing methods available:
1. Manual System: Manual payroll system is the traditional payroll system that involves pen and ink, adding machine, spreadsheet, etc. instead of computers, software and other
computerized aids. Generally small-scale organizations, construction industry and manufacturing industry use the manual payroll systems for the contractual labor, as these contracts are on daily/weekly basis. The process is tedious, time consuming and risky as it is more prone to errors. 2. Accountant: In this system, an accountant, who is a professional having a degree/diploma course in finance/accountancy is responsible for all the activities related to payroll accounting. He/she has the sound knowledge of accounting principles and globally accepted standards. The process adds costs to the organization. It involves paying someone who is responsible for calculating the salaries of others. 3. Payroll Software: In this system, automated software that performs every action needed by the payroll process is used. It helps in calculating the payable amounts and deductions very easily. It also helps in generating the pay slips in lesser time. Automated calculations result in no errors. The software validates data automatically. It needs professionals to make use of the software for its efficient working. 4. Payroll Outsourcing: It involves outsourcing the job calculations of salaries and deductions to third party. The outsourcing organization is responsible for all the activities of the payroll accounting. It saves time and cost for the organization. It is generally used in organizations having large number of employees. The outsourcing company performs the various payroll functions like analysis of payroll records, payroll taxes, medical claim processing, employee insurance and provident fund processing, etc.
2.6.4 Advantages of payroll software
1. Payroll calculations such as tax and insurance deductions can be completed in a fraction of the time that they take to work out manually. Pay slips and year-end reporting is usually automated. 2. Payroll systems can also incorporate or integrate with, timesheet systems that record employee attendance or time worked. 3. Using basic payroll data, together with data on attendance and hours worked, payroll systems can provide a wealth of reports. This allows in-depth analysis of staff costs for the business as a whole, across departments and even individual jobs and contracts. 4. Most organizations will also keep other data about employees, such as records of annual leave. You can get payroll systems that will record these additional types of information, avoiding the need for a separate software package. 5. The ability of payroll packages to provide forecasts means you can plan staff costs and budgets by entering hypothetical numbers to see the exact total cost of an employee.
2.6.5 Payroll Reports
Some of the sample reports that can be generated from payroll software are:
1. Pay slip 2. Attendance register 3. Department-wise salary
4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
Employee-wise salary Salary disbursement Income tax Statement Form No 16 PF Contribution Accumulation statutory deductions PF EPS Other deduction Advances Investment definition, types, limits Proposed and actual Investments Various HR Reports
2.6.6
Following reports could be generated from Human Resource Management System:
COMPANY ? ? ? ? ? ? ? ? ? ? ? ? ? Company Details Assets Details Asset Location Details Asset De-active details Company Holiday List Leave Types Details Professional Tax Details Contractors Details Bank Details Award types Bonus Types Vehicle Details Facility Details
EMPLOYEE ? ? ? ? ? ? ? Employee Joining Information Employee Probation Details Employee Profile Employee Salary Structure Transfer / Promotion Details Salary Increment Details Document submitted Details
? ? ? ? ? ? ? ? ? ? ? ?
Resigned Employee Details Department Wise Employee List Blood Group Employee List Assets Given to Employee Family Background Details Medical History/Annual Check-up Details Emergency Address – Contacts Details Awards Given to Employee Birthday List Employee Membership Details Employee Training History Employee Appraisals History
EMPLOYEE PROFILE ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Employee Joining Information Probation Confirmation details Company Hierarchy based on Grades and Designation Employee Current position and job profile Family background details Employee Local address and References details Employee Emergency address and contact person details Employee Qualification and experience details Employee Medical History Awards given to Employee and their Children Documents submitted by employee Assets given to employee Employees extra Circular Activities / sports / social etc. Employee Appraisals History Facility given to Employee
EMPLOYEE TRANSFER, PROMOTIONS & INCREMENTS ? ? ? Transfer Details Promotion Details Increment Details
LEAVE AND ATTENDANCE ? ? Employee Leave Application Employee Leave Approval
? ? ? ? ? ? ? ? ? ? ? ?
Leave Balance Late Coming Late Sitting Early Going Compensate Off Details Shift Details Employee Current Shift Over Time Details Employee Total Over Time Hours Daily Attendance Report Daily Absent Report Monthly Attendance
LEAVE MANAGEMENT SYSTEM ? User Defined Leave types ? Leave Balance Details ? Leave Application ? Leave Approvals ? Leave Rules PAYROLL ? ? ? ? ? ? ? ? Salary Heads Details Monthly Salary Register Salary Statement Depositing in Bank Salary Cash Statement Salary Cheque Statement Salary Slip Bonus Details Conveyance Details
TIME MANAGEMENT SYSTEM ? Employee Shift & Shift rotation with respect to shift cycle ? Employee time management, Late Coming, Early going, Absence due to travel on Duty etc. ? Attendance data can be transfer from any Time Recording Machine ? Overtime Details HRD PROCEDURES
? Final Settlement ? Gratuity ? Superannuation ? Tax Calculation GOVERNMENT OF INDIA TAXATION FORMS ? ? ? ? ? ? ? ? ? ? ? ESIC Challans PF Challans PT Challans Form 6A (Employees Yearly PF Contribution) Form 3 - (For Professional Tax) Form 12A (Revised) - Employee's Monthly PF Contribution Form 3A (Revised) Details of Employees Pension Fund Scheme – Yearly Form 19 (Claiming Employees Provident Funds Dues) Form 10 C - Pension (For Claiming PF Withdrawal) Form - 10 (Employee‘s PF Organization for Resigned Employee's) Form – 24 (Annual salary returns of the employees)
2.7 Components of designing Human Resource Management System
Consider a simple Employee Management System. Most common data components of such a system are:
1. 2. 3. 4. Personal Data Address Data Family Data Qualification/Education
5. Payroll/Time Field PERNR UNAME PREAS NAME2 NACH2 VORSW GBLND GBDEP Datatype NUM CHAR CHAR CHAR CHAR CHAR CHAR CHAR Length 8 12 2 40 40 15 3 3 Description Personnel number Name of person who changed object Reason for Changing Master Data Name at Birth Second Name Name Prefix Country of Birth State
GBORT NATIO NATI2 NATI3 SPRSL KONFE FAMST FAMDT ANZKD GBJHR GBMON GBTAG Field PERNR SUBTY SPRPS ENDDA BEGDA AEDTM UNAME ORDEX PREAS ANSSA NAME2 STRAS ORT01 ORT02 PSTLZ LAND1 TELNR ENTKM BUSRT LOCAT ADR03 ADR04 STATE
CHAR CHAR CHAR CHAR LANG CHAR CHAR DATE NUM NUM NUM NUM Datatype NUM CHAR CHAR DATE DATE DATE CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR NUM CHAR CHAR CHAR CHAR CHAR
40 3 3 3 1 2 1 8 3 4 2 2 Length 8 4 1 8 8 8 12 1 2 4 40 60 40 40 10 3 14 3 1 3 40 40 40 3
Birthplace Nationality Second Nationality Third Nationality Language of communication Religious Denomination Key Marital Status Key Valid From Date of Current Marital Status Number of Children Year of Birth Month of Birth Birth Date (to Month/Year) Description Personnel number Subtype Lock Indicator for HR Master Data Record End Date Start Date Last changed on Name of person who changed object Confirmation Fields Exist Reason for Changing Master Data Address Record Type C/O name Street and house number City District Postal Code Country key Telephone number Distance in Kilometers Company Housing Bus Route 2nd address line Street 2 Street 3 Region (State, Province, County)
WKWNG CHAR
HSNMR POSTA BLDNG FLOOR STRDS ENTK2 COM01 Field PERNR SPRPS ENDDA BEGDA AEDTM ORDEX RESE2 FAMSA FGBDT FGBLD FANAT FASEX FAVOR FANAM FGBOT FGDEP ERBNR FGBNA FNAC2 FCNAM FKNZN FINIT FNMZU KDSVH KDBSL KDUTB KDGBR KDART
CHAR CHAR CHAR CHAR CHAR NUM CHAR Datatype NUM CHAR DATE DATE DATE CHAR CHAR CHAR DATE CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR CHAR NUM CHAR CHAR CHAR CHAR CHAR CHAR CHAR
10 10 10 10 2 3 4
House Number Identification of an apartment in a building Building (number or code) Floor in building Street Abbreviation Distance in Kilometers Communication Type
Length Description 8 1 8 8 8 12 1 2 4 8 3 3 1 40 40 40 3 12 40 40 80 2 10 15 2 2 2 2 2 Personnel number Lock Indicator for HR Master Data Record End Date Start Date Last changed on Name of person who changed object Confirmation Fields Exist Reserved Field/Unused Field of Length 2 Type of family record Date of Birth Country of Birth Nationality Gender Key First Name Last Name Birthplace State Reference personnel number of family member Name at Birth Second Name Complete Name Name Format Indicator for Employee in a List Initials Other Title Relationship to child Extra pay entitlement Address of child Child allowance entitlement Child type
UNAME CHAR
KDZUG KDZUL KDVBE ERMNR FASDT FASAR FASIN BETRG TITEL EMRGN Field PERNR SPRPS ENDDA BEGDA AEDTM ORDEX PREAS ABRSP ABRDT RRDAT PRDAT PKGAB ABWD1 ABWD2 BDERR BDER1 KOBDE TIMRC DAT00 UHR00 SACHZ RCBON
CHAR CHAR CHAR CHAR DATE CHAR CHAR NUM CHAR CHAR Datatype NUM CHAR DATE DATE DATE CHAR CHAR CHAR DATE DATE DATE DATE DATE DATE DATE DATE CHAR CHAR DATE TIME CHAR DATE
2 2 2 8 8 2 20 9 15 1
Child bonuses Child allowances Sickness certificate entitlement Authority number End of family member's education/training School type of family member Educational institute Amount Title Emergency contact
Length Description 8 1 8 8 8 12 1 2 1 8 8 8 8 8 8 8 8 1 1 8 6 3 8 Personnel number Lock Indicator for HR Master Data Record End Date Start Date Last changed on Name of person who changed object Confirmation Fields Exist Reason for Changing Master Data Indicator: Personnel number locked for payroll Accounted to Earliest master data change since last payroll run Earliest personal retroactive accounting date Date as of which personal calendar must be generated End of processing 1 (run payroll for pers.no. up to) End of processing (do not run payroll for pers.no. after) Recalculation date for PDC Effective recalculation date for PDC PDC Error Indicator Date of initial PDC entry Initial input date for a personnel number Time of initial entry Administrator for Time Recording Earliest payroll-relevant master data change (bonus)
UNAME CHAR
2.8 Case Study on Human Resource Management
Problem Statement ?HealthSoft Application Services Pvt. Ltd.? develops mobile-based software applications for health services and has offices in Pune and Nasik having 150 employees. HealthSoft has decided to expand operations further and launch new products. Its managers know that they have to expand its employment from 150 to 500 in next 1 year. In addition, the company branch at Nasik needs to be closed, due to low performance. But then there are a few employees, employed at Nasik office, which have very good management skills; and a few who are technically skilled. These employees are the company‘s assets & would not want to lay them off.Suggest suitable business process that can be used for recruitment at Pune and handle the closure of branch at Nasik. Specify the different input documents (detailed documents) that are necessary for your specified business process and suggest any supporting reports that can be obtained from your specified business process.
Approach to solve the Case Study: The Case Study deals with improvement of the Human Resource Management System for a company.
1. First collect the direct stated facts: ? The company decided to expand its operation in Pune. ? The company decides to close operations in Nasik. ? There are a few employees in Nasik, the company wish to retain, as assets. 2. Then collect the unstated facts: ? Hiring is required to bring in new resources to the organization. ? Option for Internal Hire (or Transfer) should be opened up for potential candidates Nasik location to Pune location. 3. Specify the input documents that can be used to improve the process. Draw the document formats wherever possible: ? An employee requisition form from various departments stating the requests for hiring respective positions needed. The HR coordinates with different departments for their demands of filling new employees. All the respective department heads fill their requirements in the HRMS. ? Job descriptions - requirement of experience, skills, age, salary, position etc. ? Specify details about external and internal sources, recruitment process ? The company HR may also use HRMS system to find suitable candidates to shift from Nasik to Pune, using the following search/report criterion. ? The reports used as inputs from any HRMS are:
i.
Employee details - personal and official like name, address, family details, age, official such as - department details, reporting structure, etc. Employee Skills Employee Experience summary Employee‘s performance rating based on their appraisal score
ii. iii. iv.
v.
Employee salary structure
4. List output reports which can be generated from the Human Resource Management System are: ? Report for Interview dates for recruitment drives ? Report for status of each candidates ? Report for joining dates and other formalities for candidates ? Report for Total Compensation provided to each candidate
2.9 Exercise
Answer in brief (1-2 lines): 1. Define Human Resource Management. (Refer 2.1) 2. Define Organization. (Refer 2.1) 3. What is On-the-job training? (Refer 2.5.3) 4. What is the objective of performance appraisal? (Oct 11) (Refer 2.4.1) 5. Give the names of any two types of leaves.(Apr 11) (Refer 2.6.1) 6. What is recruitment?(Apr 12) (Refer 2.3) 1 mark
Write Short Note: 1. Leave accounting (Refer 2.6) 2. Process for leave application (Refer 2.6.2) 3. Recruitment sources (Refer 2.3.4) 4. Employee Appraisal (Refer 2.4) 5. Components of employee database (Refer 2.7) 6. E-Recruitment (Refer 2.3.6) 7. How to make training effective?(Apr 12) (Refer 2.5.4)
3 marks
Answer the following in detail: 5 marks 1. What is HRM (Human Resource Management)? In HRM, which policies and practices carried out by management? (Refer 2.1.2 & 2.1.3 & 2.1.4) 2. Explain the scope of HRM? (Refer 2.1.3)
3. Discuss need for HRM in modern organizations. (Refer 2.1.6) 4. What is recruitment? What are the internal and external factors for recruitment? (Oct 11) (Refer 2.3.3) 5. What are the different methods of recruitments? Explain with example. Differentiate between external and internal recruitment? State advantages and disadvantages of each. (Refer 2.3.4) 6. What is purpose of recruitment? (Refer 2.3.2) 7. Explain the recruitment process with the help of neat diagram.(Apr 11) (Refer 2.3.1) 8. What is meant by performance appraisal? Give any four objectives of appraisal.(Apr 11) (Refer 2.4 & 2.4.1) 9. ?Judgment errors may be one of the problems in Appraisal.? State True or False with reason (Refer 2.4.5)
10. Which are methods and technique of training? What is on-the-job training and off-the-job training? (Refer 2.5.3) 11. What are inputs in training and development? (Refer 2.5.4) 12. What are the objectives of employee training? (Refer 2.5.1) 13. List any four traditional methods of appraisal. (Refer 2.4.2) 14. Discuss Training Process. (Refer 2.5.6) 15. Explain the process of linking performance to the variable pay? (Refer 2.4.3) 16. What are the problems appear in appraisal? Explain any two of them in detail. (Apr 12) (Refer 2.4.5) 17. Explain different methods for payroll processing? (Refer2.6.3)
Case Study: ?Mahindra & Mahindra? is a vehicle manufacturing company having branches at Kandivali, Igatpuri and Nashik in Maharashtra. At each locationaround 500 employees are working. There is no scope for expansion of the company due to non-availability of space and political issues. Many other states offering the company a good package, providing a large space and other required facilities. Hence, company has decided to start a new plant in other state, by minimizing the strength of each existing plant by25%. Due to this many existing employees may have a chance of losing their jobs. These employees are company‘s assets and would not want to lose their skilled manpower. Company wants to adjust them to the new plant. Suggest a suitable business process model that can be used for recruitment sat new plant. To specify a business process: (Oct 11) a) Suggest main processes using any diagram. (2) b) Suggest at least 3 input documents in detail. (3) c) Suggest at least 2 report layouts in detail. (2)
3
MANUFACTURING / PRODUCTION PLANNING CONTROL SYSTEM
Objective:
Manufacturing and production planning is the backbone of any industry. The objective of this chapter is to understand the different types of planning like manpower, material resource, capacity and different aspects of like work order management and material procurement. These are important concepts to understand a Manufacturing and Production Planning and Control System.
3.1 Introduction to Production System
Production is a process whereby raw material is converted into semi-finished products and thereby adds to the value of utility of products, which can be measured as the difference between the value of inputs and value of outputs. Production function encompasses the activities of procurement, allocation and utilization of resources. The main objective of production function is to produce the goods and services demanded by the customers in the most efficient and economical way.
Inputs
Conversion Process
Outputs
Land Building Labour Material
Goods and Services Control or Feedback
Figure 13: Production System
3.2 Capacity Requirements Planning for Equipment
3.2.1 Capacity Planning
Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. Capacity is the maximum amount of work that an organization is capable of completing in a given period of time. It is used to determine how much capacity is needed (and when) in order to manufacture greater product or begin production of a new product. A number of factors can affect capacity—number of workers, ability of workers, number of machines, waste, scrap, defects, errors, productivity, suppliers, government regulations and preventive maintenance. Capacity planning is relevant in both the long term and the short term. Let us discuss each of them in detail:
3.2.1.1 Long-term capacity planning
Over the long term, capacity planning relates primarily to strategic issues involving the firm's long term goals. The tenure under consideration is generally more than six months. For example: ABC computers have a constant production of 60 PCs a month. Latest sales analysis states that orders in hand are continuous and a new schedule on PPC says that average increased capacity should now be 100 computers. The sales forecast demands this continuous or even higher in the coming decade. The PPC management now decides to increase the staff and expand to another production facility as a part of long term planning. Long term changes to capacity can be made by: ? ? ? ? Increase on major production facilities Moving to new location Using a new technology Change the existing production process
3.2.1.2 Short-term capacity planning
In the short term, capacity planning concerns issues of scheduling, labour shifts and balancing resource capacities. The goal of short-term capacity planning is to handle unexpected shifts in demand in an efficient economic manner. The time frame for short-term planning is frequently only a few days but may run as long as six months. For example: Considering the same example above with a little change; ABC computers have a constant production of 60 PCs a month. Suddenly there is an order of 100 computers on an urgent basis of the current month. This is a rare case and sales team predicts such orders are special or not recurring. This to bridge up this requirement following short terms plan may be taken: Outsource 40 machines to a vendor or work for more hours a day or week (overtime). Short term changes to capacity can be made by: ? ? ? ? ? Working overtime Hiring temporary resources Adding shifts Subcontracting Cross training of resources
3.2.2 Manpower Planning
Manpower Planning consists of putting right number of people, right kind of people at the right place, right time, doing the right things for which they are suited for the achievement of goals of the organization. The procedure for manpower planning is as follows: 1. Analyzing the current manpower inventory - Organizations usually profile the current workforce taking several factors into consideration such are number, age, gender, skill sets, experience etc. 2. Making future manpower forecasts – in terms of quantity, skills required etc.
3. Developing employment programmes – includes recruitment, selection, placement, etc. 4. Design training programmes - Training needs of present workforce are determined and promotion and succession plans are chalked out for the employees
3.2.2.1 Different Procedures in Manpower Planning
1. Status Quo Planning Method: In this method people who are promoted or leave the job are replaced. Basically it seeks to replace any changes in higher level management with suitable employees. 2. Thumb Rule: Either based on forecast or past experience an optimal ratio of employees is maintained to meet the firm‘s human resource requirements. 3. Delphi Method: Expert opinion on the company products and human resource needs is obtained from a panel in the form of independent judgment through an interview or a questionnaire. 4. Unit Forecasting: Supervisors make an estimate along with managers about the human resource needs of the company for the upcoming year. 5. Computer Simulation: Various environmental and company variables are used in computer simulations to predict and forecast the human resources needs.
3.2.2.2 Importance (Need) of Manpower Planning 1. Key to managerial functions: The four managerial functions, i.e., planning, organizing, directing and controlling are based upon the manpower. Therefore, staffing becomes a key to all managerial functions. For example: Shortages and surpluses can be identified so that quick
2. action can be taken wherever required. Efficient utilization: Manpower planning helps in utilizing the human resources efficiently. It also helps to reduce the labour cost as excess staff can be identified and thereby overstaffing can be avoided. Motivation: It helps in of developing motivational programmes, i.e., incentive plans to be framed for further participation and employment of employees in a concern. Better human relations: Human relations become strong trough effective control, clear communication, effective supervision and leadership in a concern. Staffing function also looks after training and development of the work force which leads to co-operation and better human relations. Higher productivity: Productivity level increases when resources are utilized in best possible manner through performance appraisal, training and development.
3. 4.
5.
3.3 Material Requirements Planning (MRP I)
Material requirements planning (MRP I) is a production planning and inventory control system used to manage manufacturing processes. MRP is used to primarily for creation of material requirements and time-phasing of requirements by checking the average lead times. Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, at the lowest possible cost. Consider two different scenarios:
? ?
If company purchases insufficient quantities of an item used in manufacturing (or the wrong item) it may be unable to meet contract obligations to supply products on time. If a company purchases excessive quantities of an item, money is wasted - the excess quantity ties up cash while it remains as stock and may never even be used at all.
MRP is a tool to deal with these problems. It provides answers for several questions: ? ? ? What items are required? How many are required? When are they required?
MRP can be applied both to items that are purchased from outside suppliers and to sub-assemblies, produced internally, that are components of more complex items.
3.3.1 Objectives of MRP
1. 2. 3. 4. 5. Ensure that materials and products are available for production and delivery to customers Maintain the lowest possible level of inventory Plan manufacturing activities, delivery schedules and purchasing activities MRP enables all components to be available at scheduled times and thereby promotes efficiency It helps to arrive at accurate cost
3.3.2 MRP Inputs
1. 2. 3. 4. 5. 6. Demand forecasts for end products being created How much is required at a time When the quantities are required to meet demand Shelf life of stored materials Inventory status records Bills of materials: Details of the materials, components and sub-assemblies required to make each product 7. Planning data: This includes all the restraints and directions to produce the end items like Routings, Labor and Machine Standards, Quality and Testing Standards, Scrap Percentages and other inputs
3.3.3 MRP Outputs
There are two outputs and a variety of messages/reports: 1. Output 1 is the "Recommended Production Schedule" which lays out a detailed schedule of the required minimum start and completion dates, with quantities, for each step of the Routing and Bill of Material required satisfying the demand from the Master Production Schedule (MPS) 2. Output 2 is the "Recommended Purchasing Schedule" which lays out both the dates that the purchased items should be received into the facility and the dates that the purchase orders should occur to match the production schedules
3.3.4 Manufacturing Resource Planning (MRP II)
MRP II was developed as the second generation of MRP to address some of the shortcomings of MRP and it features the closed loop system: MRP II includes the following four major additional features as compared to MRP: 1. Feedback: MRP II includes feedback from the shop floor on how the work has progressed, to all levels of the schedule so that the next run can be updated on a regular basis. For this reason it is sometimes called 'Closed Loop MRP'. 2. Resource Scheduling: There is a scheduling capability within the heart of the system that concentrates on the resources, i.e. the plant and equipment required to convert the raw materials into finished goods. For this reason the initials `MRP' now mean Manufacturing Resources Planning. 3. Batching Rules: Batching rules can be incorporated; indeed they have to be if resource scheduling is to take place. Thus output is produced in terms of batches. 4. Software extension programs: A number of other software programs are included in the MRP II. Some of these are further designed to help the scheduling procedure. For example it may include an option for entering and invoicing sales orders (Sales Order Processing). Another common extension is into stock recording and a third into cost accounting. A full MRP II implementation can therefore act as an integrated database for the company. 5. Data accuracy: Errors in recording in one part of the system will result in problems for all the users. The suppliers of such systems encourage users to aim for accuracy of between 95% and 98%.
3.3.5 Advantages of MRP
MRP systems offer many advantages over traditional systems, including: 1. 2. 3. 4. 5. 6. 7. 8. 9. Improved business results (i.e., return on investment, profits) Improved manufacturing performance results Better manufacturing control More accurate and timely information Fewer inventories Time-phased ordering of materials Less material obsolescence Higher reliability More responsiveness to market demand and reduced production costs
3.4 Production Planning and Control
Production Planning and Contol
Production Planning
Production Control
Planning
Dispatching
Routing
Following up
Scheduling
Inspection
Loading
Corrective action
Figure 14: Production Planning and Control System
Production planning: It consists of four steps of planning, routing, scheduling and loading: a. Planning Production planning is be defined as the technique of foreseeing every step in a long series of separate operations, each step to be taken at the right time and in the right place and each operation to be performed in maximum efficiency. It helps to work out the quantity of material, manpower, machine and money required for producing predetermined level of output in given period of time. b. Routing The main aim of routing is to determine the best and cheapest operations, their path and sequence. To perform these operations the proper class of machines and personnel required are also worked out. Routing procedure helps to answer questions like what to make and what to buy, manufacturing operations and their sequence c. Scheduling It involves working out of time that should be required to perform each operation and also the time necessary to perform the entire series as routed, making allowances for all factors concerned. Scheduling is mainly concerned with time element and priorities of a job. The different types of schedule are: Master Schedule: Scheduling usually starts with preparation of master schedule which is weekly or monthly break-down of the production requirement for each product for a definite time period. It helps to
understand the total production requirements and helps to shift the production from one product to another as per the changed production requirements Production schedule: The main objective of preparing the production schedule is to plan the amount of work that can be easily handled by plant and equipment without interference and takes into account factors like physical plant facilities, personnel, material, etc. Manufacturing schedule: It is prepared on the basis of type of manufacturing process involved. It is very useful where single or few products are manufactured repeatedly at regular intervals. d. Loading The next step in the execution of the schedule plan as per the route chalked out includes the assignment of the work to the operators at their machines or work places. So loading determines who will do the work as routing determines where and scheduling determines when it shall be done Production control: Production control is the process of regulating and stimulating the orderly show of materials in the manufacturing process from beginning to end. It issues the necessary orders for start and follow-up to have the smooth function of the enterprise. It consists of four steps of dispatching, follow-up, inspection and correction. a. Dispatching It involves issue of production orders for starting the operations. Necessary authority and conformation is given for movement of materials, tools and fixtures, beginning of work on each operation, etc. b. Follow-up It involves determination of the progress of work, removing bottlenecks in the flow of work and ensuring that the productive operations are taking place in accordance with the plans. It spots delay or deviations from the production plans. c. Inspection This is mainly to ensure the quality of goods. It can be required as effective agency of quality control. d. Corrective measures They involve those activities of adjusting the route, rescheduling of work, changing the workloads, repairs and maintenance of machinery or equipment, control over inventories, etc. Also, certain personnel decisions like training, transfer, demotion etc. may have to be taken.
3.4.1 Objectives of PPC
1. 2. 3. 4. 5. Timely delivery of products without losing its quality and quantity To maximize utilization of available resources Reduction of wastages and scrap, thus controlling the losses To integrate with various production activities Reduce back tracking of production processes
3.4.2 Functions of PPC
1. 2. 3. 4. 5. 6. Prepare work orders and plans for product manufacture Control over material usage and reduce scrap Evaluate work schedule by monitoring progress reviews Monitor cost by comparing actual to planned Control over machines, tools and equipments Co-ordinate with different modules to plan and optimize processes
3.4.3 Factors affecting PPC
1. 2. 3. 4. Inventory level Available resources Production type – Batch, make to order or mass Design and nature of the product
3.4.4 Advantages of PPC
1. 2. 3. 4. 5. 6. Increased production efficiency and throughput Requirements are specified and met appropriately Lower production cost Decrease or eliminate errors and wastages Eliminate production process bottlenecks Increased customer relations and profit margin
3.4.5 Work Order Management
In a manufacturing environment, a work order (or job order) is converted from a sales order to show that work is about to be begin on the manufacture, building or engineering of the products requested by the customer. In a service environment, a work order can be equivalent to a service order where the work order records the location, date and time the service is carried out and the nature of work that is done. A rate the total amount of hours worked and total value is also shown on the work order. Thus the work order will state: ? ? ? ? the quantity of the product to be manufactured built or fabricated the amount of raw material to be used its price and amount the types of labour required, rate (per hour or per unit) and amount the machine utilization for each machine during the routing process, its rate and amount
Work Order Management requires multiple steps in a sequential process like Capture, Validation, Fraud Check, Payment Authorization, Sourcing, Backorder management, Pick, Pack, Ship and associated customer communications. Order management systems usually have workflow capabilities to manage this process.
3.4.6 Functions of Work Order Management
1. 2. 3. 4. 5. 6. Releasing of manufacturing orders Withdrawal of material from stores Inventory management Issuing tools for manufacturing process Allocation of jobs to machine Quality inspection and suggesting corrective measures
3.4.7 Categories of Materials
Material is usually classified in two categories: Direct Material: All items such as raw materials, standard and specialized parts and sub-assemblies required to assemble or manufacture a complete product. Direct material costs are assignable to a specific product, cost centre or work-order. (Oct 11) Indirect Material: Consumables (such as cleaning chemicals, disposable tools, protective devices) not used as raw materials, but which make the production of a good or service possible, more efficient or safer. Indirect material costs are not readily identifiable with a specific product or job. They are termed indirect costs and are charged to overhead accounts. (Apr 11)
3.4.8 Economic Order Quantity (EOQ)
Economic Order Quantity is that size of the order that gives maximum economy in purchasing any material and ultimately contributes towards maintaining the materials at the optimum level and at the minimum cost. In other words, the (EOQ) is the amount of inventory to be ordered at one time for purposes of minimizing annual inventory cost. The quantity to order at a given time must be determined by balancing two factors: 1. Cost of possessing or carrying materials 2. Cost of acquiring or ordering materials Purchasing larger quantities may decrease the unit cost of acquisition, but this saving may not be more than offset by the cost of carrying materials in stock for a longer period. The carrying cost of inventory may include: 1. Interest on investment of working capital 2. Property tax and insurance 3. Storage cost, handling cost 4. Deterioration and shrinkage of stocks 5. Obsolescence of stocks
Underlying Assumptions of Economic Order Quantity:
1. 2. 3. 4. 5.
The ordering cost is constant The rate of demand is constant The lead time is fixed The purchase price of the item is constant i.e. no discount is available The replenishment is made instantaneously; the whole batch is delivered at once
Formula of Economic Order Quantity (EOQ): The following formula is usually used for the calculation of EOQ:
? ? ?
A = Demand for the year Cp = Cost to place a single order Ch = Cost to hold one unit inventory for a year
Example to calculate economic order quantity (EOQ): ABC Computer runs a computer delivery and assembly unit. Annual demand for the Core5 is 60 computers. The annual holding cost per unit is Rs 2000 and the cost to place an order is Rs25000. Calculation:
3.5 Material Procurement
It involves whole purchase cycle to satisfy request for right quality and quantity, at the right time and within the budget. There are different steps for procuring of required material for manufacturing process: 1. 2. 3. 4. 5. 6. 7. Establishing and communicating the need for procurement by the requesting department Scrutiny of the purchase indents by the purchasing department Vendor analysis and selection of them Purchase Order preparation and follow up Receiving the material and Inspection for quality check Storage and record keeping for inventory management Invoicing and Payment
3.5.1 Purchase Indent
Indent means ?requirement of materials‘. It also means an order to export or import goods.
Purchase Indent (Purchase Requisition or Request) is a document generated by an internal organization to notify the purchasing department of items it needs to order, their quantity and the period.
An indent is raised from each department. Once this indent is approved by authorized personnel, after that it goes for purchase order. The requisition is completed ("closed") when a purchase order (PO) is issued by the organization to the external party for fulfillment. The purchase order is complete when all items have been received either in full or have been adjusted otherwise, e.g., deleted off due to the vendor's inability to supply a particular item. For example: When ABC computer wants to order stock for Hard disks, the Stores department makes a Purchase Indent to the Purchase Ordering department of ABC computers. Example of Purchase Indent:
Figure 15: Purchase Indent form
3.5.2 Vendor Analysis The idea of vendor analysis is to go beyond simply deciding on the product to be purchased. Buyers want to maximize the value of the purchase by making certain they are getting the product from the right
supplier. They want to control the total cost of obtaining and using the product, not just the immediate cost on the invoice. Vendor analysis is a formal process of evaluating potential suppliers based on selected criteria that might include not just price, but also product quality and selection, delivery, ordering, inventory and product availability, service reliability, as well as the value of the potential long-term relationship. Vendor analysis is necessary to increase the value of purchases over the long term, to save the firm time and money and to do a better job of purchasing overall. Vendor analysis is the assessment of current or prospective suppliers with respect to their: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Financial strength Business model Capacity to supply the appropriate products and services Capabilities – what it can and cannot do or provide Turnover and profit levels Markups, price list and discounts Reliability and quality Reputation Payment terms Deliveries Ability to implement a solution if services are being purchased Availability of experienced staff
Method to Rate Suppliers/Vendors: 1. Quality – for example number of not right first-time deliveries 2. Delivery schedule adherence 3. Cost/Price 4. Capability 5. Service Results of each variable are then weighted into a final score – usually a percentage, allowing suppliers to be ranked. 3.5.3 Bill of Materials (BOM) Bill of Materials (or BOM) is a list of the raw materials, sub-assemblies, intermediate assemblies, components, sub-components, parts and the quantities of each needed to manufacture an end product. No physical dimension is described in BOM. BOM is simply a very specific shopping list that tells somebody elsewhere in the company exactly what to purchase and how much. A BOM can be displayed in the following formats: 1. A single-level BOM that displays the assembly or sub-assembly with only one level of children. Thus, it displays the components directly needed to make the assembly or sub-assembly.
2. An indented BOM that displays the highest-level item closest to the left margin and the components used in that item indented more to the right Steps in BOM Design: 1. Understand what it is you are building. It is necessary to check thoroughly each phase to find the exact necessary components. 2. List the parts in your assembly. Be thorough and complete even for small things like nuts. 3. Assign part numbers to each item in your assembly. It is important to keep a database of part numbers. Avoid creating multiple part numbers for the same part. 4. Make sure each of the part numbers you will use has some specification, drawing, data sheet, etc. that allows it to be purchased or fabricated. 5. Assign item numbers to the items in a BOM. 6. List exact quantities of each item on your BOM. Be sure the quantity is consistent with the unit of measure in which an item is purchased (inch, feet, meters, ounces, etc.) 7. Make sure the BOM corresponds exactly to the assembly documentation, whether that is an assembly drawing, schematic, etc. 8. Include the assembly documentation or a link to it in the bill of materials. Assemble to order: It is a production method in which an item is assembled after receipt of a customer's order. The key items used in the assembly or finishing process are planned and usually stocked in anticipation of a customer order. Receipt of an order initiates assembly of the customized product.
3.5.4 Receipt of Material
When the material comes to warehouse from supplier, company will prepare following documents: 1. Gate inward entry This will have item details like item code, received quantity, supplier code based on Delivery Challan, etc. 2. Inspection Report This will contain the details of the items that failed the quality check. Example of Inspection Report:
Figure 16: Inspection Report
3. Material Inward register This document is prepared by Stores person with fields like Received Quantity, Quantity Accepted and Quantity Rejected. 4. Goods Receipt Note Goods Receipt Note (GRN) is a document used to record the inward entry of the any goods received at the premises of the organization. The document normally consists of the details of Quantity Received, Quantity Rejected and Quantity Accepted, Supplier Name & P.O. Number and is based on the Material Inward Register. The practice of preparing GRN‘s is important as it promotes proper inventory control and restricts the unwanted, unauthorized entry of goods in the organization. Example of Goods Receipt Note:
Figure 17: Goods Receipt Note
5. Update Stock Ledger The last step is to update stock ledger with Accepted Quantity.
3.5.5
Bin Card
(Apr 11)
Bin card is a record of receipt and issue of materials. Quantity of store received is entered with receipt column and the quantity of store issued is recorded in the issue column of Bin Card. Balance of quantity of stores is ascertained after every receipt or issue. It shows the balance of the stock at any moment of time. Bin Card is maintained by the store-keeper. He is answerable for any difference between physical store and the balance shown by the Bin Card. Thus Bin Card does not only records the receipt an issue of the stores but also assist the store keeper for control of the stock. For each item of stores minimum level
maximum level and ordering level are shown in the part of the Bin Card. By seeing the Bin Card the store-keeper sends the material requisition for the purchase of materials from time to time.
Figure 18: Structure of Bin Card
3.6 Case Study on Manufacturing / Production Planning Control System and Sales and Distribution Management System
Problem Statement:
In the Distillation Plant, distilled water is prepared, which is basically used in preparation of medicines, salines and batteries. The order is placed for test tube, vessels, flasks, coiled glass tube etc. the supplier processes the sales order and generations bill. The distillation plant pays bill and get the receipts. Suggest a suitable business process, to model the above situation and ensure a smooth flow, within the production process. To specify a business process: a) Suggest main process using any diagram. b) Suggest atleast 3 input documents in detail. c) Suggest atleast 2 report layouts in detail. 2 marks 3 marks 2 marks (Apr 12)
Approach to solve the Case Study: 1. First collect the direct stated facts: ? There is Distillation Plant where distilled water is prepared, which is in turn used in preparation of Medicines, Salines and Batteries. These are the customers for the Plant
? ? ?
Raw material for the Plant is test tube, vessels, flasks, coiled glass tube etc., which is procured from Vendors A purchase order is raised by the plant to the suppliers. They convert the PO to SO and processes the sales order and generates bill The distillation plant pays bill and get the receipts
2. Then collect the unstated facts: ? There needs improvement in order processing system ? There has to be a link between PO, SO and Invoice ? The system should also help to maintain the optimum quantity of inventory 3. Specify Business process: ? The case relates to improvement in SDMS – Order processing, Delivery and Invoice steps of Sales flow and MPPC (Capacity planning, MP, MRP and EOQ – Inventory management) business process
ENQUIRY
QUOTATION VENDOR ANALYSIS ORDER MANPOWER PLANNING, MRP, DELIVERY & INVOICE EOQ
CAPACITY PLANNING,
SALES ANALYSIS
4. Specify the input documents and data that can be used to improve the process. Draw the document formats wherever possible: ? The distillation plant must do a Vendor Analysis to choose a vendor. This is first step of process is which is done on various factors to save the firm time and money and to do a better job of purchasing overall. ? The Distillation plant must use a Purchase Order form to send the requirements to its vendors.
? ? ? ? ?
The Sales Order form must be generated by the vendors using the reference of the Purchase Order. The vendors must also send a Delivery Note along with the dispatching of the items. The vendors must raise an Invoice with necessary details which is received by the Distillation plant to pay the bills Also the calculations for the different forms of planning like capacity planning, manpower planning and MRP must be done. Example Purchase Order:
5. List output reports which can be generated from the Sales and Distribution Management System like: ? The Distillation plant should generate output report for MRP-I with data like: o What items are required? o How many for each item are required? o When are the items required? ? The Inventory reports with optimum inventory and EOQ should be also generated. ? A report to list all the Bills payable with their dates can be also generated.
3.7 Exercise
Answer in brief (1-2 lines): 18. Give any two objectives of Material Requirement planning. (Oct 11) (Refer 3.3.1) 19. Define Direct Material. (Oct 11) (Refer 3.4.7) 20. What is lead time? (Oct 11, Apr 12) (Refer ) 21. Define Indirect material. (Apr 11) (Refer 3.4.7) 22. Define Bill of material. (Apr 11) (Refer 3.5.3) 23. Write the formula to calculate EOQ in inventory control. (Apr 11) (Refer 3.4.8) 24. What do you mean by EOQ? (Apr 12) (Refer 3.4.8) 25. Define Capacity planning. (Refer 3.2.1) 26. What is manpower planning? (Refer 3.2.2) 27. Define purchase indent. (Refer 3.5.1) 28. What is routing. (Refer 3.4) 1 mark
Write Short Notes: 8. Draw the structure of Bin Card. (Apr 11) (Refer 3.5.5) 9. Explain the advantages of MRP. (Refer 3.3.5) 10. Goods Receipt Note. (Refer 3.5.4)
3 marks
Answer the following in detail: 5 marks 1. Define production planning. Explain the functions of the production planning and control. Explain the extent of production planning and control with diagram. (Refer 3.4) 2. What is capacity requirement? Differentiate between Long and Short term capacity strategy. (Refer 3.2.1) 3. What are the inputs to MRP? What are the outputs to MRP? (Apr 12) (Refer 3.3.2 & 3.3.3) 4. Write a note on MRP-I. (Refer 3.3) 5. Explain in brief MRP-II. (Refer 3.3.4) 6. Explain functions of Manpower Planning. (Oct 11) (Refer 3.2.2) 7. Explain work order management. (Refer 3.4.5) 8. Write a note on Economic Order Quantity (EOQ). (Refer 3.4.8) 9. What is Bill of Materials? (Refer 3.5.3) 10. Explain the process of material procurement. (Refer 3.5) 11. Explain the objectives of Material Requirement Planning. (Apr 11) (Refer 3.3.1) 12. Explain process of purchase indent with an example. (Refer 3.5.1) 13. What is significance of vendor analysis? (Refer 3.5.2) 14. The annual demand for the product is 5800 units. The unit cost is 6/- Rs and inventory carrying cost per unit per annum is 15 % of the average inventory cost. If the cost of Procurement is Rs. 65, Determine: EOQ, Number of orders per annum, Total cost of purchasing. (Refer 3.4.8)
Case Study on Manufacturing / Production Planning Control System: The purchase department of ?Fibre optics ltd? handles purchase requests from other departments in the company. People in the company who initiate the original purchase request are the "customers" of the purchasing department. A person working within the purchasing department receives that request and monitors it until it is ordered and received. It has been found that the materials being purchased are not up to the quality, specifically in case of high-valued materials (materials worth around Rs 10,000 & worth).There are lot of complaints regarding the quality of these high valued, from the consuming departments. There seems to be something wrong in the purchase process, for these materials. 1. Suggest a suitable business process, to model the above situation. 2 marks 2. Specify the different input documents (detailed documents) that are necessary for your specified business process. 3 marks 3. Also, suggest any supporting reports that can be obtained from your specified business process. 2 marks
4
BANKING
Objective: In the contemporary times, Banking is evolving regularly to move towards embracing technology in form of ATM, E-Banking, Biometric devices, etc. The objective of this chapter is to understand the basic concepts of banking and simple transactions and also get introduced to the usage of technology in Banking.
4.1 Basics of Banking
A bank is a financial institution accepting deposits of money from the public for purpose of lending or investment, repayable on demand and withdrawal by cash, cheque, draft, order, etc. Banks have following Customer Segments ? ? ? ? Personal banking SME/Commercial banking Corporate & Investment banking Private banking
Benefits for Customer ? ? ? ? ? Encourages customers to cultivate the ?savings‘ habit High level of liquidity Convenience – available 24 hours a day, 7 days a week Offers a range of products to suit needs of individual customers Safety/Security
Benefits for Bank ? ? ? Good source of low cost funds Large customer base - volume driven business Diversification of risk to a larger pool and variety of clientele Cross selling is more prevalent in Personal Banking than any other stream
?
4.1.1 Relationship - Bank and Customer There can be number of relationships between bank and customer depending on situation:
? ? ? Debtor & Creditor: Customer deposits money with bank hence he becomes a Lender or Creditor of the bank. Bank has accepted deposit from customer hence bank becomes a Debtor. Pledger and Pledgee: When customer pledges (promises) certain assets or security with the bank in order to get a loan, the customer becomes the Pledger and the bank becomes the Pledgee. Bailor & Bailee: Banks acts as a caretaker for valuables & securities in the safe custody, in this case, customer becomes the Bailor and the bank becomes the Bailee.
? ? ? ?
Trustee& Beneficiary: When the Bank holds property for the beneficiary, it becomes Trustee for the Beneficiary. Agent & Principal: Bank acts as Agent of customer, provides agency services to customer and is responsible for carrying out customer‘s instruction. Lessee and Lessor: Bank acts as a Lessor when it rents out space (e.g. locker) to customer who is a Lessee. Advisor and Client: When a customer invests in securities, on advice from the bank, the banker acts as an Advisor and the customer as a Client.
4.1.2 Products and Services
Products Liability Products Demand Deposits Current Accounts Saving Accounts Time Deposits Fixed Deposits Recurring Deposits Cluster Deposits Asset Products Loan Products Home Loans Vehicle Loans Asset Loans Personal Loans Securities Loans Card Products Charge Cards Credit Cards Transaction Services Banking Related Pay Orders Demand Drafts Money Transfer Electronic Clearing Standing Instruction Foreign Exchange Travelers Cheque Forex Other Products/Services Investments Securities Trading Wealth Management Mutual Funds Custody Services Insurance Life Insurance Asset Insurance Medical Insurance
4.2 Savings Bank Account
Saving Bank Account is meant to promote the habit of saving among the citizens while allowing them to use their funds when required. The main advantage of Savings Bank Account is its high liquidity and safety. Additionally, Savings Bank Accounts earn moderate interest too. The rate of interest was earlier decided and periodically reviewed by the Government of India. Presently, the rate of interest is decided by the banks themselves. (Apr 12)
4.2.1 Opening an Account Savings Bank Account can be opened in the name of an individual or in joint names of the depositors. Savings Bank Accounts can also be opened and operated by the minors provided they have completed ten years of age. Minors‘ Account can also be opened by their natural guardians either jointly with the minor or singly or by guardians appointed by a competent court Accounts by Hindu Undivided Families (HUF) not engaged in any trading or business activity can be opened in the name of the Karta of the HUF. Savings accounts are opened at the discretion of the bank for persons who comply with the Know Your Customer (KYC) norms. Illiterate persons/blind persons may also open savings accounts provided they are properly introduced and other formalities for opening accounts of such persons are duly observed. The minimum balance to be maintained in an ordinary savings bank account varies from bank to bank. It is less in case of public sector banks and comparatively higher in case of private banks. In most of the public sector banks, minimum balance to be maintained is Rs. 100. In accounts where cheque books are issued, generally a minimum balance of Rs. 500/- has to be maintained. 4.2.2 Nominee (Oct 11) Nomination is the process of appointing a person to take care of your assets in the event of your death. You can appoint a nominee for your bank account, fixed deposit, demat account or even your house. A nominee can be a family member, a friend or any other person whom you trust. You need to choose a nominee with care as the person needs to be reliable enough to take care of your assets in the event of your death. Therefore, when you open a savings bank account, there is a space, which asks for the nominee details. 4.2.3 Things to Consider While Opening a Savings Account (Apr 11) 1. 2. 3. 4. 5. 6. It is advisable to seek the following information from bank before opening the account: Minimum balance requirements Penal provisions in case the balance falls below the minimum stipulated amount Penalty in case of return of cheques issued or instruments sent on collection Collection facilities etc. offered and charges applicable. Details of charges, if any for issue of cheque books and limits fixed on number of withdrawals, cash drawings, etc.
4.2.4 General Document Required (KYC Norms) 1. Two passport size photographs 2. Proof of residence i.e. Passport/driving license/Gas / Telephone / Electricity Bill/ Ration card/voters identity card 3. An introduction of the person from an existing account holder 4. PAN number / Declaration in form no.60 or 61 as per the Income Tax Act 1961 4.2.5 Closing of Account 1. If a depositor closes the account within 12 months of opening it, a small charge will generally be made
2. The Bank reserves the right to close any account without previous intimation if in the Bank's opinion it is not operated upon satisfactorily or for any other reason whatsoever 3. All remaining cheque books and passbooks should be submitted with a letter of closing 4.2.6 Account Transfer Savings accounts may be transferred from one office of the bank to another office in India, free of charge on a written request from the depositor and on return of the unused cheque leaves, if any, along with the passbook. 4.3 Cheques
1. A cheque is a written instruction you give to your banker to make payment by debit to your account on demand 2. Cheque is a valid payment instrument from the date shown on the face of it. By banking practice three months is treated as normal validity of a cheque 3. A Bearer cheque is payable to the holder. An Order cheque is payable to the person on whose favour it is drawn or subsequent endorsees. So banks seek identification of the person receiving payment of an order cheque 4. Banks verify the signature on the cheque with the account holder's specimen signature on record before making payment 5. Report loss of cheque to the issuing bank immediately and give Stop Payment instruction to them 6. Cheques should not be issued without adequate balance in the account or arrangements to pay. Dishonor of cheque for insufficiency of funds or exceeding amount arranged to be paid, is a criminal offence punishable with imprisonment for a period up to one year or with fine, which may extend to twice the amount of the cheque
4.4 Transactions
4.4.1 Deposits Amounts received for the credit of a savings account should ordinarily be accompanied by pay-in-slips with counterfoils, which will be supplied by the bank, free of charge, on request. Pay-in-slips should be made out separately for each of the following items: 1. 2. 3. 4. 5. Cash Cheques and other instruments drawn on the branch Cheques and other instruments drawn on local branches of Indian Bank Cheques drawn on outstation branches of Indian Bank or any other Bank and Cheques and other instruments drawn on local branches of other banks
Cheques and Dividend Warrants can also be used as Deposit instruments. 4.4.2 Withdrawals Drawings from savings bank account will be by withdrawal forms or cheques supplied by the bank.
Where a withdrawal is made by means of a withdrawal slip through a third party authorized by the account holder, the account holder should sign his name on the reverse of the withdrawal form naming the authorized person to whom the payment is to be made and also authenticate the signature of the person receiving payment on his behalf. The authorized person receiving the cash will affix his signature on the reverse of the withdrawal form. Normally no money can be withdrawn from a savings account operated by withdrawal slips without the production of the passbook. Withdrawal by cheques in cheque-operated accounts may be made only on cheque leaves supplied by the bank to the depositor. The use of withdrawal slips is restricted to Rs.10000/- for cash transactions and Rs.20000/- for transfer transactions.
4.5 ATM Application
An Automated Teller Machine (ATM), also known as Automated Banking Machine (ABM) or Cash Machine or All Time Money (in India), is a computerized telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. (Apr 12) 4.5.1 Features 1. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip; that contains a unique card number and some security information such as an expiration date or CVV 2. Authentication is provided by the customer entering a personal identification number (PIN) 3. Using an ATM, customers can access their bank accounts in order to make cash withdrawals or deposits, balance enquiry, transfers, pay bills, order cheque books, purchase prepaid cell phone credit, deposit Cheques etc. Modern ATM‘s provide most functionality which the bank offers to the customers 4. If the currency being withdrawn from the ATM is different from that which the bank account is denominated in (e.g. Withdrawing Japanese Yen from a bank account containing US Dollars), the money will be converted at a wholesale exchange rate. Thus, ATMs often provide the best possible exchange rate for foreign travelers and are heavily used for this purpose as well 4.5.2 Construction An ATM is typically made up of the following devices: 1. 2. 3. 4. 5. CPU (to control the user interface and transaction devices) Magnetic and/or Chip card reader (to identify the customer) Secure crypto processor, generally within a secure enclosure Display (used by the customer for performing the transaction) Function key buttons (usually close to the display) or a Touchscreen (used to select the various aspects of the transaction)
6. Record Printer (to provide the customer with a record of their transaction) 7. Vault (to store the parts of the machinery requiring restricted access) 8. Housing (for aesthetics and to attach signage to)
Figure 19: ATM machine
Mechanisms found inside the vault may include: 1. Dispensing mechanism (to provide cash or other items of value) 2. Deposit mechanism including a Cheque Processing Module and Bulk Note Acceptor (to allow the customer to make deposits) 3. Security sensors (Magnetic, Thermal, Seismic, Gas) 4. Locks: (to ensure controlled access to the contents of the vault) 5. Journaling systems (a sealed flash memory device based on proprietary standards) or a solid-state device (an actual printer) which accrues all records of activity including access timestamps, number of bills dispensed, etc. This is considered sensitive data and is secured in similar fashion to the cash as it is a similar liability 4.5.3 Advantages (Apr 11) 1. Usage ? ? ? ?
Easy to use Available 24X7 Quick and efficient Anywhere banking
? Cross banking facility ? No need to carry cash always or depend on bank timings 2. Alternative uses ? Deposit currency recognition, acceptance and recycling ? Pay routine bills, fees, taxes (utilities, phone bills, social security, legal fees, taxes, etc.) ? Printing bank statements ? Updating passbooks ? Loading monetary value into stored value cards ? Purchasing postage stamps, lottery tickets, Train tickets, ? Cheque Processing ? Adding pre-paid cell phone / mobile phone credit 4.5.4 Reliability and Security measures 1. Reliability: Before an ATM is placed in a public place, it typically has undergone extensive testing with both test money and the backend computer systems that allow it to perform transactions. Banking customers also have come to expect high reliability in their ATMs. 2. Fraud: As with any device containing objects of value, ATMs and the systems they depend on to function are the targets of fraud. Fraud against ATMs and people's attempts to use them takes several forms. 3. Physical security: A common theft method is to simply rob the staff filling the machine with money. To avoid this, the schedule for filling them is kept secret, varying and random. The money is often kept in cassettes, which will dye the money if incorrectly opened. 4. Customer identity integrity: There have also been a number of incidents of fraud by man-in-themiddle attacks, where criminals have attached fake keypads or card readers to existing machines. These have then been used to record customers' PINs and bank card information in order to gain unauthorized access to their accounts. Various ATM manufacturers have put in place countermeasures to protect the equipment they manufacture from these threats 5. Device operation integrity: Openings on the customer-side of ATMs are often covered by mechanical shutters to prevent tampering with the mechanisms when they are not in use. Alarm sensors are placed inside the ATM and in ATM servicing areas to alert their operators when doors have been opened by unauthorized personnel. 6. Customer security: Multiple security cameras and security guards are a common feature.
4.6 Online banking (E-banking or Internet banking)
Online banking or E-banking allows customers to conduct financial transactions on a secure website. 4.6.1 Advantages of Online Banking 1. Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a bill, wire transfer and applications like applying for a loan, new account, etc.) ? Electronic Bill Presentment and Payment (EBPP) ? Funds transfer between a customer's own checking and savings accounts or to another customer's account
Investment purchase or sale ? Loan applications and transactions, such as repayments of enrollments 2. Non-transactional (e.g., online statements, check links, browsing, chat) ? Bank statements 3. Financial Institution Administration ? Support of multiple users having varying levels of authority ? Transaction approval process ? Wire transfer 4.6.2 Security features Protection through single password authentication is not considered secure enough for personal online banking applications. So generally, there exist two different security methods for online banking. The PIN/OTP system where the PIN represents a password, used for the login and OTP represents onetime passwords to authenticate transactions. Digital certificates are used against phishing and pharming. In addition, the use of class-3 card readers is a measure to avoid manipulation of transactions by the software in signature based online banking variants. To protect their systems against Trojan horses, users should use virus scanners and be careful with downloaded software or e-mail attachments. 4.6.3 Types of Internet Banking Products (Services) (Apr 11, Oct 11) Internet banking products in India into three types based on the levels of access granted: 1. Information Only System: General-purpose information like interest rates, branch location, bank products and their features, loan and deposit calculations are provided in the banks website. There exist facilities for downloading various types of application forms. The communication is normally done through e-mail. There is no interaction between the customer and bank's application system. No identification of the customer is done. In this system, there is no possibility of any unauthorized person getting into production systems of the bank through internet. 2. Electronic Information Transfer System: The system provides customer- specific information in the form of account balances, transaction details and statement of accounts. The information is still largely of the ?read only‘ format. Identification and authentication of the customer is through password. The information is fetched from the bank's application system either in batch mode or offline. The application systems cannot directly access through the internet. 3. Fully Electronic Transactional System: This system allows bi-directional capabilities. Transactions can be submitted by the customer for online update. This system requires high degree of security and control. In this environment, web server and application systems are linked over secure infrastructure. It comprises technology covering computerization, networking and security, inter-bank payment gateway and legal infrastructure.
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4.7 Biometric Devices and its scope in Applications
The term biometrics is widely known as ?the science of measuring physical characteristics, to verify a person‘s identity which includes voice recognition, iris and face scans and fingerprint recognition.? Biometric characteristics can be divided in two main classes: 1. Physiological those are related to the shape of the body. Examples include, but are not limited to: ? Fingerprint ? Face recognition ? DNA ? Palm print ? Hand geometry ? Iris recognition, which has largely replaced retina ? Odour/Scent 2. Behavioral those are related to the behavior of a person. Examples include, but are not limited to: ? Typing rhythm ? Gait ? Voice 4.7.1 Types of Applications (Biometric devices) (Oct 11) 1. Fingerprint biometrics: They are probably the most common form of biometrics available today. By having an individual scan their fingerprint electronically to decode information, the transmitter of the data can be certain that the intended recipient is the receiver of the data. When scanned electronically, fingerprints provide a higher level of detail and accuracy can be achieved over manual systems. Some other strengths associated with fingerprint biometrics are that giving fingerprints is more widely accepted, convenient and reliable than other forms of physical identification, especially when using technology. 2. Hand Geometry: Closely associated with fingerprint biometrics is another biometric that registers the imprint left by the palm of the hand. These types of scanners measure the geometry of the hand rather than the fine skin patterns as found in the fingertip. Hand scanners have been used in apartment buildings, nurseries, etc. to control access to restricted areas. These units are more commonly found in areas where dirt or debris on hands may make fingerprint identification difficult such as on shop floors in manufacturing plants. Although palm print scanners nearly match fingerprint scanners in reliability, the units are much larger in size and cost than fingerprint scanners. 3. Retina/Iris Scanners: There are two common types of optical biometrics; retinas and irises. Retinal and iris biometric devices are more accurate than fingerprint and hand biometric devices because both the retina and iris have more characteristics to identify and match than those found on the hand. The error rate for the typical retina or iris scanner is about one in two million attempts, which further demonstrates the reliability of this technology. Two drawbacks to these devices however are that they have difficulty reading images of those people who are blind or have cataracts and that they sometimes cumbersome to use. 4. Facial Scan: Facial biometrics can function either from short distances or over greater distances. This form of biometric however are often less reliable then more common forms such as fingerprints and
iris scans. The interpretative functions the computer must perform to find a match is much more subjective using this technology. An image is examined for overall facial structure, which works well over short distances but progressively loses accuracy the greater the distance between the individual and the scanner. Changes in lighting can also increase the error rate in these devices. This type of technology is in place in several airport terminals and at many border crossings to help determine the identities of individuals at a distance who may be involved in criminal activities without alerting the individual that they are being monitored. 5. Voice recognition: There are several distinct advantages that voice recognition has for use in encryption technology. Not only are voice biometrics perfect for telecommunication applications, most of the modern personal computers already possess the necessary hardware to utilize the applications. Therefore, for fewer budgets individuals can possess the technology needed to have reliable biometric encryption technology for use over the Internet. The error rate for this type of biometric is not as accurate, however, as some other forms. The error rate for this type of technology ranges between two and five percent, however it lends itself well for voice verification over the public telephone system and is more secure than PINs. Some drawbacks to this technology are that voiceprints can vary over the course of the day and one‘s health, such as a cold or laryngitis, can affect verification of the user by the system. 4.7.2 Need (Importance) for Biometrics (Apr 11, Apr 12) 1. Biometrics identifies a person via a unique human characteristic: the size and shape of a hand, a fingerprint, one‘s face or several aspects of the eye. If the goal of an access control system is to control where people, not credentials, can and cannot go, then only a biometric device truly provides this capability to the end user. 2. As a result, biometrics is used on the front doors of thousands of businesses around the world, at the doors to the tarmacs of major airports and at the entrances of other facilities where the combination of security and convenience are desired. 3. Biometric hand readers control client and employee access to special areas of banks, prisons, universities, hospitals, International airports, etc. 4. India is undertaking an ambitious mega project (the Multipurpose National Identity Card) to provide a unique identification number to each of its 1.25 billion people. The Identification number will be stored in a central databases; consisting the biometric information of the individual. Once implemented, this would be the biggest implementation of the biometrics in the world. 4.7.3 Usage Methodology 1. The first time an individual uses a biometric system is called an enrolment. During the enrolment, biometric information from an individual is stored. In subsequent uses, biometric information is detected and compared with the information stored at the time of enrolment. 2. The sensor is the interface between the real world and the system; it has to acquire all the necessary data. Most of the times it is an image acquisition system, but it can change according to the characteristics desired. 3. The processor removes artifact from the sensor, to enhance the input (e.g. removing background noise), to use some kind of normalization, etc.
4. Next, the necessary features are extracted. A vector of numbers or an image with particular properties is used to create a template. A template is a synthesis of the relevant characteristics extracted from the source. Elements of the biometric measurement that are not used in the comparison algorithm are discarded in the template to reduce the file size and to protect the identity of the enrollee. 4.7.4 Advantages (Oct 11) 1. The goal of any access control system is to let authorized people, not just their credentials, into specific places. Only with the use of a biometric device can this goal be achieved. 2. A card-based access system will control the access of authorized pieces of plastic, but not who is in possession of the card. 3. Systems using PINs require an individual only know a specific number to gain entry; but who actually entered the code cannot be determined. On the contrary, biometric devices verify who people are by what they are, whether by hand, eye, fingerprint or voice recognition. 4. Biometric reductions in errors have lowered the capital costs of ID cards in recent years and the true benefit of eliminating them is realized through reduced administrative efforts. For example, a lost card must be replaced and reissued by someone. Just as there is a price associated with the time spent to complete this seemingly simple task, when added together, the overall administration of a card system is costly. 5. Contrary to using badges, sign-ins or other ways of tracking employees, a biometric time clock assures that no employee can punch in for another, eliminating time fraud and reducing payroll costs. Because every person‘s biometric characteristic (hand, fingerprint, eyes, face, etc.) is unique, a biometric time clock provides a quick, accurate and reliable way to record in- and out-punches for each employee. That is why so many companies now employ biometrics.
4.8 Exercise
Answer in brief (1-2 lines): 1 mark 1. Define ATM. (Apr 12) (Refer 4.5) 2. Define Biometrics. (Refer 4.7) 3. What is E-banking? (Refer 4.6) 4. What is mean by nominee? (Oct 11) (Refer 4.2.2) 5. State any two benefits of ATM in banks. (Apr 11) (Refer 4.5.3) 6. Give any two things to be considered while opening a savings account. (Apr 11) (Refer 4.2.1) 7. State any two use of Biometric. (Apr 12) (Refer 4.7.2) 8. What is saving account?(Apr 12) (Refer 4.2)
Write Short Notes: 1. Hand Geometry (Refer 4.7.1) 2. Iris scan (Refer 4.7.1) 3. Retina scan (Refer 4.7.1)
3 marks
4. 5. 6. 7. 8. 9. 10.
Face recognition (Refer 4.7.1) Voice recognition (Refer 4.7.1) Biometric devices (Refer 4.7.1) Cheques (Refer 4.3) ATM (Refer 4.5) Online banking (Refer 4.6) Explain any three services provided through E-banking.(Apr 11) (Refer 4.6.3) 5 marks
Answer the following in detail:
1. What is saving account? List the steps of open saving account. (Refer 4.2 & 4.2.1) 2. What are the documents required to open Saving Accounts in the bank? (Refer 4.2.4) 3. What are the advantages of ATM to customer? State any two benefits of ATM to banks. (Refer
4.5.3)
What are the merits and demerits of E-banking? (Refer 4.6.1) Why is the need of Biometric? Which devices are used for Biometric? (Refer 4.7.1) Discuss benefits of E-banking to banking industry. (Refer 4.6.1) Describe the different Relationships between Bank and Customer. (Refer 4.1.1) Explain the different types of transactions in a Bank. (Refer 4.1.2) What is E-banking? Explain 3 types of internet banking products based on levels of access granted. (Oct 11) (Refer 4.6.3) 10. List any four biometric devices and give benefits of biometric supported ATM. (Oct 11) (Refer 4. 5. 6. 7. 8. 9.
4.7.4)
11. Write the importance of biometric devices. (Apr 11) (Refer 4.7.2) 12. Write a short note on E-Banking. (Apr 12) (Refer 4.6)
5
ADVANCED BUSINESS SYSTEMS
Objective: Different businesses use various types of Advanced Business Systems to improve the efficiency and effectiveness. The objective of this chapter is to understand basics of systems like Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Supply Chain Management (SCM), BPO, KPO, etc. We will also learn the concepts of International Business Management and Total Quality Management.
5.1 Enterprise Resource Planning (ERP)
ERP systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, etc. ERP systems automate this activity with an integrated software application. Its purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders. ERP can be defined as a process or approach that attempts to consolidate all of a company's departments and functions into a single computer system that services each department's specific needs. (Oct 11) Most companies have a conglomeration of different systems and procedures (as well as hardware and software) designed 'specifically' for their own needs such as: ? ? ? ? ? Employee records (including payroll, medical and other benefits) are held by Human Resources Financial data and processing, which includes payroll computations and employee compensation as well as invoicing and billing for company products and services, are held by the Finance Department Production data is held by Manufacturing Inventories are held by Warehousing Customer orders are held by Customer Relations
ERP systems are cross-functional and enterprise-wide. All functional departments that are involved in operations or production are integrated in one system.
The most often-cited example of an ERP software is customer ordering and delivery where a customer's order moves smoothly from Sales, where the 'deal' is consummated, to Inventory and Warehousing, which retrieves and packages the order for delivery, to Finance, where invoicing, billing and payments are handled and on to Manufacturing, where replacement of the bought-and-paid-for product is done. 5.1.1 Scope of ERP ERP covers a wide range of business and typically, it fulfills all the business demand. For customizing ERP completely, the users have to make some changes in the implemented service package. Here is a list of most of the services where ERP is vastly in use:
1. Production Department: Engineering, Bills of Material, Scheduling, Capacity, Workflow Management, Quality Control, Cost Management, Manufacturing Process, Manufacturing Projects, Manufacturing Flow 2. Supply Chain Management: Inventory, Order Entry, Purchasing, Product Configurator, Supply Chain Planning, Supplier Scheduling, Inspection of goods, Claim Processing, Commission Calculation 3. Financials: General Ledger, Cash Management, Accounts Payable, Accounts Receivable, Fixed Assets 4. Projects: Costing, Billing, Time and Expense, Activity Management 5. Human Resources: Human Resources, Payroll, Training, Time & Attendance, Benefits 6. Customer Relationship Management: Sales and Marketing, Commissions, Service, Customer Contact and Call Centre support 5.1.2 ERP Evaluation The selecting of Enterprise Resource Planning package is a herculean task. When selecting the ERP solution you must make sure that the package is a good fit for your organization. An ERP package should provide an organization with a solid foundation, incorporating all of the fundamental aspects of running a business. Expectations run high when an organization deploys an ERP package. If the solution is a good fit for the company, the company stands to gain tremendous cost savings and service improvements across the enterprise. Every industry has industry-specific requirements. The ability of ERP vendors to handle these requirements should be carefully evaluated because they can be a major differentiator in your selection process. You should evaluate both general ERP vendors as well as industry-specific vendors. Industry-specific vendors are very functionally focused and already understand many of the issues you need to resolve. 5.1.3 No 01 Package ERP Solution Vs Custom Development ERP Solution Custom Development Packaged ERP Definition: Custom software (also known as bespoke software) is a type of software that is developed either for a specific organization or function that differs from other already available software (also called off-the-shelf software). Definition: Is actually a process or approach that attempts to consolidate all of a company's departments and functions into a single computer system that services each department's specific needs. It is, in a sense, a convergence of people, hardware and software into an efficient production, service and delivery system that creates profit for the company.
02
Scope: It is generally not targeted to the mass Scope: ERP packages are made for mass market market, but usually created for companies, and only need to be implemented as per company business entities and organizations. choice of needs and models. Budget: Custom software also refers to when companies or governments pay for customized software for budget or project managing. Budget: These are planned for long term and are budgeted as a part of company maintenance. Cost: Cost is one time for installation and implementation. Later it varies as per contract,
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Cost: Is one time or as per contract. Generally upgrades and rollouts. low cost as compared. 04 Maintenance: Custom software being targeted to certain audiences, have to be frequently updated and the cost of updating is calculated as per the requested modification. Maintenance: ERP packages are targeted to wide audiences, so any global change in the industry is taken care by the ERP company by releasing patches for corrections. Cost of maintenance is generally high and contract based.
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Up gradation: In case of up gradation, it is Up gradation: Is easy and cost effective, without very difficult or nearly impossible, rather a buying the initial software. new version has to be purchased. Custom Reports: Generally, the company Custom Reports: These are generally open that supplies the custom software has the source codes and maintenance can be done in authority and access to backend data. So house with proper programming knowledge. custom reports is a part of the contract. Technical: They are designed as per specified Technical: These are generally designed to run on hardware or Operating Systems. multi-OS, hardware and system landscapes. Examples of bespoke software include Examples: SAP, Oracle, PeopleSoft, JD Edwards, products for commercial and governments BAAN etc. such as: Inventory Management, Customer Management, Employee Management Modules of ERP
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5.1.4
(Oct 11)
ERP finance module ? ? ? All kind of organizations small scale, large-scale organizations benefit from the implementation of ERP financial module. The financial module is the core of many ERP software systems. It can gather financial data from various functional departments and generates valuable financial reports such general ledger, trail balance, as balance sheet and quarterly financial statements.
ERP HR (Human Resources) Module ? ? HR module streamlines the management of human resources and human capitals. HR modules routinely maintain a complete employee database including contact information, salary details, attendance, performance evaluation and promotion of all employees. Advanced HR module is integrated with knowledge management systems to optimally utilize the expertise of all employees.
ERP Production Module
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In the process of evolution of Manufacturing Requirements Planning (MRP) II into ERP, while vendors have developed more robust software for production planning, consulting firms have accumulated vast knowledge of implementing production planning module. Production planning optimizes the utilization of manufacturing capacity, parts, components and material resources using historical production data and sales forecasting.
ERP Purchasing Module ? ? ? ? Purchase module streamlines procurement of required raw materials. It automates the processes of identifying potential suppliers, negotiating price, awarding purchase order to the supplier and billing processes. Purchase module is tightly integrated with the inventory control and production planning modules. Purchasing module is often integrated with supply chain management software.
ERP Inventory Module ? ? Inventory module facilitates processes of maintaining the appropriate level of stock in a warehouse. The activities of inventory control involves in identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances and reporting inventory status. Integration of inventory control module with sales, purchase, finance modules allows ERP systems to generate vigilant executive level reports.
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ERP Sales and Marketing Module ? ? ? ? Sales module implements functions of order placement, order scheduling, shipping and invoicing. Sales module is closely integrated with organizations' ecommerce websites. Many ERP vendors offer online storefront as part of the sales module. ERP marketing module along with CRM supports lead generation, direct mailing campaign and other marketing works. Advantages of ERP (Apr 11, Apr 12) Installing an ERP system has many advantages - both direct and indirect. The direct advantages include improved efficiency information integration for better decision-making, faster response time to customer queries, etc. The indirect benefits include better corporate image, improved customer goodwill, customer satisfaction and so on. Some of the benefits are quantitative (tangible) while others are non-quantitative (intangible). Tangible benefits are those measured in monetary terms and intangible benefits cannot be measured in monetary terms but they do have a very significant business impact. Tangible benefits: 1. Improves the productivity of process and personnel 2. Lowering the cost of products and services purchased
5.1.5
3. 4. 5. 6. 7. 8.
Paper and postage cost reductions Inventory reduction Lead time reduction Reduced stock obsolescence Faster product / service look-up and ordering saving time and money Automated ordering and payment, lowering payment processing and paper costs
Intangible benefits: 1. 2. 3. 4. 5. 6. 7. 8. Increases organizational transparency and responsibility Accurate and faster access to data for timely decisions Can reach more vendors, producing more competitive bids Improved customer response Saves enormous time and effort in data entry More controls thereby lowering the risk of misutilization of resources Facilitates strategic planning Uniform reporting according to global standards
5.2 Supply Chain Management (SCM)
Supply chain management spans all movement and storage of raw materials, work-in-process inventory and finished goods from point of origin to point of consumption. Supply chain execution means managing and coordinating the movement of materials, information and funds across the supply chain. The flow is bi-directional. Supply chain management is a cross-function approach including managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods and the movement of finished goods out of the organization and toward the end-consumer. Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become known. The marketing department, responding to customer demand, communicates with several distributors and retailers as it attempts to determine ways to satisfy this demand. Information shared between supply chain partners can only be fully leveraged through process integration. (Apr 11) There are two areas of supply chain management: ? ? Inbound SCM: Related to purchasing and suppliers Outbound SCM: Related to sales and customers
Supply chain management must address the following problems:
1. Distribution Network Configuration: Number, location and network of suppliers, production facilities, distribution centres, warehouses and customers. 2. Distribution Strategy: Operating control (centralized, decentralized or shared), delivery scheme. 3. Trade-Offs in Logistical Activities: All activities must be well coordinated in order to achieve the lowest total logistics cost. Trade-offs may increase the total cost if only one of the activities is optimized. For example, full truckload rates are more economical on a cost per pallet basis than less than truckload shipments. If, however, a full truckload of a product is ordered to reduce transportation costs, there will be an increase in inventory holding costs that may increase total logistics costs. It is therefore imperative to take a systems approach when planning logistical activities. These trade-offs are key to developing the most efficient and effective logistics and SCM strategy. 4. Information: Integration of processes through the supply chain to share valuable information, including demand signals, forecasts, inventory, transportation, etc. 5. Inventory Management: Quantity and location of inventory, including raw materials, work-inprogress (WIP) and finished goods. 6. Cash Flow: Arranging the payment terms and methodologies for exchanging funds across entities within the supply chain.
5.2.1 Advantages of SCM 1. Increased coordination between suppliers, distributors and partners 2. Enhanced customer relationship 3. Reduced cost of operation Examples: ? For a company in medical services that distributes medical and surgical supplies to medical practitioners and home health care industry, a SCM system will coordinate with the manufacturers of the medical suppliers, the retailers and the logistical department of major hospitals. By keeping tracking of the usage patterns, the SCM system will be able to forecast the demand of medical/surgical products by seasons, by regions and by customer types. This will save the inventory cost for the medical service company and major hospitals that order the medical supplies. For large retailers like supermarkets, they have many regional distribution centres; a SCM system will effectively coordinate between suppliers of clothes, paper products and retail stores to reduce the inventory cost. The retail store chain will be able to pass the saving of inventory cost to customers and offer lower prices for many everyday products. The backbone of many service operations are Supply Chain Management or SCM.
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5.3 Customer Relationship Management (CRM)
CRM is a process or methodology used to learn more about customers' needs and behaviors in order to develop stronger relationships with them. CRM is as a process that will help bring together lot of pieces of information about customers, sales, marketing effectiveness, responsiveness and market trends.
CRM helps businesses use technology and human resources to gain insight into the behavior of customers and the value of those customers. 5.3.1 Need (Scope) of CRM 1. It involves using technology to organize, automate and synchronize business processes—principally sales activities, but also those for marketing, customer service and technical support. 2. The overall goals are to find, attract and win new clients, nurture and retain those the company already has, entice former clients back into the fold and reduce the costs of marketing and client service. 3. CRM systems for marketing help the enterprise identify and target potential clients and generate leads for the sales team. 4. A key marketing capability is tracking and measuring multichannel campaigns, including email, search, social media, telephone and direct mail. Metrics monitored include clicks, responses, leads, deals and revenue. 5. In a web-focused marketing CRM solution, organizations create and track specific web activities that help develop the client relationship. These activities may include such activities as free downloads, online video content and online web presentations 5.3.2 CRM Process and its Importance 1. The first step is to establish CRM goals. This would go into your business plan at the startup of your company. 2. This means figuring out who your target audience is and how you are going to draw them into your business. There could already be a multitude of stores offering pretty much the same thing. The only way to make your business a success then is by making people realize why they should come to you over those other stores. 3. The next step in the CRM process is to educate other departments. 4. Assemble all required customer information, design the data model, vendor study and select the right CRM solution. 5. After this, you establish authority and responsibility. This depends on the size of your business and all the people involved with it. 6. Communicate with customers. This is one of the most important things to remember. It can be hard to always keep up with all your customers and potential customers, especially with the rest of the tasks you need to focus on to run your business but this step must not be neglected. Communicating with customers is a CRM best practice. This practice is how you show them you appreciate their business and build relationships. 7. Customer surveys can help keep track of your customers and what they are interested in and the same goes for customer satisfaction programs. These help you to realize certain areas you may need to work on. Always get feedback from your customers. 5.3.3 CRM Benefits
(Apr 11)
1. Retaining customers - enabled by excellent customer service 2. Enables easier growth, indirectly and directly, for example by sustaining healthier volumes and margins and by business expansion from word-of-mouth referrals
3. High levels of customer retention via effective customer service also improves staff morale and motivation 4. Improved staff morale and motivation resulting from reducing customer attrition also positively benefits staff retention and turnover, recruitment quality and costs, stress, grievance, discipline and counseling pressures 5. Retaining customers also enables the whole organization - especially middle managers to focus more on proactive opportunities (growth, innovation, development, etc.) rather than reactive firefighting, crisis management, failure analysis and the negative high pressures to win replacement business. 6. Having a culture of delighting and retaining customers fuels positive publicity and reputation in the media and increasingly on the web in blogs and forums, etc.
5.4 Call Centre
A call centre is an office where a company's inbound calls are received or outbound calls are made. Call centres are increasingly popular in today's society, where many companies have centralized customer service and support functions. 5.4.1 Call Centre Features Call centres employ many staff in customer service, sales and support functions. Call centres are often large offices staffed with representatives who either make or receive phone calls. ? ? ? ? Depending on the needs of the company, call centres can make either incoming or outgoing calls. Incoming calls: To discuss problems, concerns about the services or products. E.g. Queries on Credit cards, services to domestic appliances, service providers facilities – mobile etc. Outgoing: Marketing promotions – launching of new schemes, new products etc. Call centres have been increasingly popular as outsourcing increases. With outsourcing, a company contracts out some jobs to be handled by other companies. As it can be expensive to maintain call centre equipment and staff, some companies choose to outsource their telephone functions to an external call centre. In this case, external call centre staff can be trained to answer phone calls from a number of different companies.
5.4.2 Call Centre Advantages Call centres can provide a number of advantages to companies: 1. By centralizing telephone-based service and support in one location, companies can easily adjust staffing to match call volume. 2. Call centres can be located almost anywhere, allowing companies to take advantage of time zones and cheaper labor rates in different states and countries. 3. They also centralize the technology needs of companies, allowing major telecommunications setups to be installed in a small handful of call centres instead of a number of smaller offices, making upgrades and training easier. 4. Many call centres use a number of different technologies to help improve performance and customer experience.
5. Inbound call centres often use automatic call distribution, in which incoming calls are assigned to representatives in the order in which they are received. 6. Most call centres utilize call monitoring, in which customer calls are randomly monitored by quality assurance staff to ensure that phone representatives meet customer needs. 7. Call centre technology evolves constantly, helping call centre staff assist customers more efficiently and effectively. 5.4.3 Scope in Customer Support ? Customer service, especially in the shape of a call centre is to customers one of the most visible and significant aspects of organizational performance. ? For many organizations however, customer service is one of the most challenging and neglected areas of management, including those with modern call-centres. ? For customers the quality of customer service determines whether to buy and particularly whether to remain a customer. ? In any market or industry - it costs far more to gain new customers than to retain existing customers. Neglecting, constraining or failing to optimize customer services capabilities is waste of great opportunities.
5.5 Business Process Outsourcing (BPO)
Business Process Outsourcing (BPO) is a subset of outsourcing that involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. It is primarily used to refer to the outsourcing of services. BPO is typically categorized into back office outsourcing, which includes internal business functions such as human resources or finance and accounting and front office outsourcing, which includes customer related services such as contact centre services. A contact centre is a facility used by companies to manage all client contact through a variety of mediums such as telephone, fax, letter, e-mail and increasingly, online live chat. 5.5.1 BPO Advantages 1. Cost reductions: Cost reduction is done through process improvements, reengineering and use of technologies that reduce and bring administrative and other costs under control. 2. Concentration on core business: With the day-to-day back office operations taken care of, the management is free to concentrate more on the core business of the company. 3. Outside expertise: Company is saved from the hassles of recruiting and training personnel. BPO‘s ensure that experts from another company provide the needed guidance and skills. 4. Cater to changing customer demands: Many BPO‘s provide the management with flexible and scalable services to meet the customers' changing requirements and to support company acquisitions, consolidations and joint ventures. 5. Revenue increase: By outsourcing non-core processes, companies can concentrate on increasing their sales and market share, develop new products; spread out into new markets and increase customer service and satisfaction.
5.6 Knowledge Process Outsourcing (KPO)
Knowledge Process Outsourcing (KPO) is a form of outsourcing, in which knowledge-related and information-related work is shared. It may be in a different company or by a subsidiary of the same organization, may be in the same country or in an offshore location to save cost. This typically involves high-value work carried out by highly skilled staff. (Oct 11) KPO firms, in addition to providing expertise in the processes themselves, often make many low level business decisions, typically those that are easily undone if they conflict with higher-level business plans. KPO is usually focused on knowledge-intensive business processes that require significant domain expertise. The profile of people being hired to serve within KPO service companies are more diverse than just being drawn from technical IT services. These are people with MBAs and medical, engineering, design or other specialist business skills. The central theme of KPO is to create value for the client by providing business expertise rather than process expertise. KPO involves a shift from standardized processes to advanced analytical thinking, technical skills and decisive judgment based on experience. 5.6.1 Areas of operation 1. Investment research services (equity, fixed income and credit and quantitative research) 2. Business research services 3. Data analytics 4. Market research services 5. Valuation and fairness opinions 6. Legal research services (also known as Legal Process Outsourcing) 7. Patent research services 8. Business operations support, analytics & management
5.7 International Business Management
International business is a term used to collectively describe all commercial transactions (private and governmental, sales, investments, logistics and transportation) that take place between two or more regions, countries and nations beyond their political boundary. Usually, private companies undertake such transactions for profit; governments undertake them for profit and for political reasons. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc.
This increased international business has led to economic globalization, which refers to increasing economic interdependence of national economies across the world through a rapid
increase in cross-border movement of goods, service, technology and capital. Economic globalization comprises the globalization of production, markets, competition, technology and corporations and industries
5.7.1 Evolution of International Business ? The business across the borders of the countries had been carried on since times immemorial. However, the business had been limited to the international trade until the recent past. ? The post-World War period witnessed an unexpected expansion of national companies into international or multinational companies. ? The post 1990s period has given greater fillip to international business. ? In fact, the term international business was not in existence before two decades. The term international business has emerged from the term international marketing, which in turn, emerged from the term 'export marketing'. 5.7.2 International Trade to International Marketing ? Originally, the producers used to export their products to the nearby countries and gradually extended the exports to far off countries. ? Gradually, the companies extended the operations beyond trade. ? For example, India used to export raw cotton, raw jute and iron ore during the early 1900s. ? The massive industrialization in the country enabled us to export jute products, cotton garments and steel during 1960s. ? India, during 1980s could create markets for its products, in addition to mere exporting. ? The export marketing efforts include creation of demand for Indian products like textiles, electronics, leather products, tea, coffee etc., arranging for appropriate distribution channels, attractive package, product development, pricing etc. ? This process is true not only with India, but also with almost all developed and developing economies. 5.7.3 International Marketing to International Business ? The multinational companies that were producing the products in their home countries and marketing them in various foreign countries before 1980s started locating their plants and other manufacturing facilities in foreign/host countries. ? Later, they started producing in one foreign country and marketing in other foreign countries. ? For example, Unilever established its subsidiary company in India, i.e., Hindustan Lever Limited (HLL). HLL produces its products in India and markets them in Bangladesh, Sri Lanka, Nepal, etc. Thus, the scope of the international trade is expanded into international marketing and international marketing is expanded into international business. 5.7.4 Nature of International Business ? The 1990s and the new millennium clearly indicate rapid internationalization and globalization. ? The entire globe is passing at a dramatic pace through the transition period. Today, the international trader is in a position to analyze and interpret the global social, technical, economic, political and natural environmental factors more clearly.
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Conducting and managing international business operations is a crucial venture due to variations in political, social, cultural and economic factors, from one country to another country. For example, most of the African consumers prefer less costly products due to their poor economic conditions. Whereas the German consumers prefer high quality and high priced products due to their higher ability to buy. Therefore, the international businessman should produce and export less costly products to most of the African countries and vice versa to most of the European and North American countries. High priced and high quality Palmolive soaps are marketed in European countries and the economy priced Palmolive soaps are exported and marketed in developing countries like Ethiopia, Pakistan, Kenya, India, Cambodia etc.
5.7.5 Factors affecting International Business 1. Impact of Culture: In Switzerland, foreign dishwasher manufacturers expected the same rapid sales as they had first obtained in other West European markets; but sales in Switzerland were so slow that research had to be done to find out. The research showed that the Swiss homemaker had a different set of values to, for example, her French and English counterparts; she was very conscious of her role as strict and hardworking and her responsibility for the health of her family. To the Swiss homemaker dishwashers simply made life easy and this conflicted with her Calvinistic work ethic. Because of this research, dishwasher manufacturers had to change their advertising promoting, instead of ease and convenience, hygiene and health. They did this by emphasizing that because dishwashers used temperature higher than hand hot, the process was more hygienic than washing up by hand. 2. Language: Language is an important factor in international business. Even though 'English language' is a major language in business operations in the world, There are still a large number of 'non-English' speaking countries. Therefore, international business houses should train their employees in the local language of the host country. 3. Nationalism and Business Policy: Nationalism is a dominating factor of the social life of the people of the host countries. In fact, nationalism also affects the business operations of the multinational corporations dramatically and drastically. For example: The US people used the slogan 'Be American and Buy American made', when the US automobile industry failed to meet the competition of Japanese automobile companies operating in USA. Therefore, international business houses should be cautious of nationalism and it‘s after effects. 5.7.6 Market Potential Opportunities Market potential is defined as the capacity of a location, such as a country, to become or to grow as a demander of goods and services that outside suppliers might provide. Various measures of market potential are provided especially for emerging economies, intended as guides to exports and foreign direct investment. On the other words, market potential is a measure of probable demand for a product or service in a classified geographic area. There are different elements in market potential need to be followed to get accurate results. From the market potential information, we can determine and analyse markets for particular product by the sales, awareness, taste, perception, price of the competitor product, purchase patterns and so forth.
The different elements included in market potential: 1. Target market and market segment for the product: Target market is defined as a set of people from the population to which a company wishes to sell. Target markets are typically defined by demographic information such as age, income level, ethnicity or interests and not by body size or shape. 2. Demographic: It is commonly refers as the study on people population regarding their age, gender, income, race, education and so forth. Demographic will provide useful information such as people income level. It is because, customers differ in their needs and wants based on the income level etc. 3. Income level: It is the average earnings of individuals. Income level is essential to be consider in market potential research as the information about income level will guide the researcher on what kind of product that the customer will buy such as a BMW car or a Tata car, how much quantity will potential customer buy for the product such as in small amount or large amount and how often the potential customer will buy the product at a moment as well as the average consumption such as in a month, how frequently they buy the product. 4. Consumer behaviour: In consumer behaviour, we would like to determine what is the customer perception about different products 5. Competition: It is essential to determine the competition aspect because competition information will give information about the competitor product and the market share in the industry. 6. Government incentives: This point is important in considering market potential because the success of some products may depend on government support. Benefits of Market Potential Analysis: 1. 2. 3. 4. Understand market potential for a single store, network of stores or a new market Deploy resources effectively by ranking markets in priority order Forecast total opportunity in terms of number of customers and revenue potential Estimate your market share
5.7.7 Competitive Advantage Enterprise competitive advantage can be defined as: ?If an enterprise in the production operating within the territory is able to provide consumers with the same quality or better than the quality of rival products at the lower price and to get more than competitors average level of profit, then the enterprise has a competitive advantage.? The source of competitive advantage is the enterprise capability and resources. As far as these two factors, none of these factors alone can become a sufficient condition for competitive advantage. However, the effective combination of both factors is a necessary condition of high and sustained competitive advantage. Resources and internal capability are the results of long-term development, if resources and capability cannot be copied and imitated by competitors, then the enterprise has formed competitive advantage. Resources are the relative stable, easy to be observed assets; these assets will help to improve the performance of enterprise. Moreover, capability of enterprise refers to continual usage of skills to the organizational structure and staffs to complete the task. Looking from the resources advantage aspect, competitive advantage includes brand name, enterprise own technical knowledge and skills of its employees. From the aspect of capability advantage, competitive advantage includes management, learning ability and capability to innovate and so on.
5.8 Quality
In manufacturing, a measure of excellence or a state of being free from defects, deficiencies and significant variations, brought about by the strict and consistent adherence to measurable and verifiable standards to achieve uniformity of output that satisfies specific customer or user requirements. Quality is defined as "the totality of features and characteristics of a product or service that bears its ability to satisfy stated or implied needs." Quality control is a process employed to ensure a certain level of quality in a product or service. It may include whatever actions a business deems necessary to provide for the control and verification of certain characteristics of a product or service. The basic goal of quality control is to ensure that the products, services or processes provided meet specific requirements and are dependable, satisfactory and fiscally sound. Essentially, quality control involves the examination of a product, service or process for certain minimum levels of quality. The goal of a quality control team is to identify products or services that do not meet a company‘s specified standards of quality. If a problem is identified, the job of a quality control team or professional may involve stopping production temporarily. Depending on the particular service or product, as well as the type of problem identified, production or implementation may not cease entirely. 5.8.1 Total Quality Management (TQM) Total Quality Management (TQM) is an approach that seeks to improve quality and performance that will meet or exceed customer expectations. This can be achieved by integrating all quality-related functions and processes throughout the company. TQM looks at the overall quality measures used by a company including managing quality design and development, quality control and maintenance, quality improvement and quality assurance. TQM takes into account all quality measures taken at all levels and involving all company employees. 5.8.2 Principles of TQM TQM can be defined as the management of initiatives and procedures that are aimed at achieving the delivery of quality products and services. A number of key principles can be identified in defining TQM, including: 1. Executive Management: Top management should act as the main driver for TQM and create an environment that ensures its success. 2. Training: Employees should receive regular training on the methods and concepts of quality. 3. Customer Focus: Improvements in quality should improve customer satisfaction. 4. Decision Making: Quality decisions should be made based on measurements. 5. Methodology and Tools: Use of appropriate methodology and tools ensures that non-conformances are identified, measured and responded to consistently. 6. Continuous Improvement: Companies should continuously work towards improving manufacturing and quality procedures. 7. Company Culture: The culture of the company should aim at developing employees ability to work together to improve quality. 8. Employee Involvement: Employees should be encouraged to be pro-active in identifying and addressing quality related problems.
5.8.3 TQM Advantages 1. Majority of advantages are long-termed and tangible benefits from them appear only after successful realization. 2. In big organizations, this process can take few years. Long-term benefits expected from implementation of TQM ? higher productivity ? higher moral tonus of personnel ? decreasing of costs ? increasing of consumers' trust 3. This will make company popular and increase its status within society. 4. Avoidance of mistakes allows company to save money and time. 5. Extra resources can be used for range of products and services expansion or for other improvements. 6. TQM creates atmosphere of enthusiasm and satisfaction with performed job and welcomes awarding bonuses for creative approach to professional duties. 7. TQM intensively uses team style of work that allows employees share their experience, use their skills effectively and apply joint efforts for solving issues. 8. TQM gives to organization more flexibility in work and problem solving and improve work environment for each employee.
5.9 Six Sigma
? Six Sigma is a quality management initiative that takes a very data-driven, methodological approach to eliminating defects with the aim to reach six standard deviations from the desired target of quality. Six standard deviations means 3.4 defects per million (99.99966%). (Apr 12) Continually improving a product stays ahead of the times and the needs of customers and society, means improving its technological capabilities and overall product quality. Six Sigma is a business management strategy originally developed by Motorola, USA in 1986. It seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes. It uses a set of quality management methods, including statistical methods and creates a special infrastructure of people within the organization ("Black Belts", "Green Belts", etc.) who are experts in these methods. Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified financial targets (cost reduction or profit increase).
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Six Sigma projects follow two project methodologies following Plan-Do-Check-Act Cycle. These methodologies, composed of five phases each, bear the acronyms DMAIC and DMADV. (Oct 11)
5.9.1 DMAIC
DMAIC is used for projects aimed at improving an existing business process. The DMAIC project methodology has five phases: 1. Define the problem and the project goals, specifically. 2. Measure key aspects of the current process and collect relevant data. 3. Analyze the data to investigate and verify cause-and-effect relationships. Determine what the relationships are and attempt to ensure that all factors have been considered. Seek out root cause of the defect under investigation. 4. Improve or optimize the current process based upon data analysis using techniques such as design of experiments and standard work to create a new, future state process. Set up pilot runs to establish process capability. 5. Control the future state process to ensure that any deviations from target are corrected before they result in defects. Implement control systems such as statistical process control, production boards and visual workplaces and continuously monitor the process. 5.9.2 DMADV DMADV is used for projects aimed at creating new product or process designs. The DMADV project methodology has five phases: 1. Define design goals that are consistent with customer demands and the enterprise strategy. 2. Measure and identify CTQs (characteristics that are Critical to Quality), product capabilities, production process capability and risks. 3. Analyze to develop and design alternatives, create a high-level design and evaluate design capability to select the best design. 4. Design details, optimize the design and plan for design verification. This phase may require simulations. 5. Verify the design, set up pilot runs, implement the production process and hand it over to the process owner(s). 5.9.3 Roles in Implementation Six Sigma identifies several key roles for its successful implementation: ? Executive Leadership includes the CEO and other members of top management. They are responsible for setting up a vision for Six Sigma implementation. They also empower the other role holders with the freedom and resources to explore new ideas for breakthrough improvements. Champions take responsibility for Six Sigma implementation across the organization in an integrated manner. The Executive Leadership draws them from upper management. Champions also act as mentors to Black Belts. Master Black Belts, identified by champions, act as in-house coaches on Six Sigma. They devote 100% of their time to Six Sigma. They assist champions and guide Black Belts and Green Belts. Apart from statistical tasks, they spend their time on ensuring consistent application of Six Sigma across various functions and departments.
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Black Belts operate under Master Black Belts to apply Six Sigma methodology to specific projects. They devote 100% of their time to Six Sigma. They primarily focus on Six Sigma project execution, whereas Champions and Master Black Belts focus on identifying projects/functions for Six Sigma. Green Belts are the employees who take up Six Sigma implementation along with their other job responsibilities, operating under the guidance of Black Belts.
5.9.4 Features of Six Sigma 1. Timeframe: To effectively use the Six Sigma methodology, a substantial amount of time must be allowed for a project. It does not provide simple fixes and at times, the people involved can become frustrated with the time required to systematically follow the improvement model. 2. Training Requirements: In traditional Six Sigma implementations, employees go through extensive training to become Six Sigma project leaders (Black Belts and Green Belts) and sponsors (Champions and Process Owners). For the Black Belt role in particular, training can take several weeks or more and occur over a period of months. This is not feasible in some environments. 3. Corporate Focus: Although the principles underlying Six Sigma could certainly be made applicable to small business and organizations, it is primarily an option for larger corporate organizations. Overwhelmingly, the majority of training and information available is geared toward that sector. This makes it difficult for other groups to see any benefit in adopting the methodology. 5.9.5 Advantages of Six Sigma 1. Based on Data: Decisions are made based on empirical evidence, not just on assumptions and anecdotal evidence. This includes determining the need for a project, determining the cause of the problem being addressed and deciding what improvements will be made. In all these cases, data is required for decision-making. 2. Proven Success: Beginning with Motorola, many large companies have successfully rolled out Six Sigma initiatives and driven positive change in their organizations. The results have benefited customers, employees and shareholders. 3. Sustainable Solutions: The DMAIC and DMADV processes are specifically designed for sustainable solutions. In DMAIC, the improvements to a process are confirmed with data and an entire phase is devoted to ensuring that the gains are sustained. In DMADV, which is used for creating new products and processes, a similar mindset holds.
5.10 Exercise
Answer in brief (1-2 lines): 1. Define SCM. (Refer 5.2) 2. Define Quality. (Refer 5.8) 3. Define Six Sigma. (Apr 12)(Refer 5.9) 4. Define BPO. (Refer 5.5) 5. What is KPO? (Oct 11) (Refer 5.6) 6. Give any two methodologies of six sigma. (Oct 11) (Refer 5.9) 7. Define uses of CRM. (Apr 11) (Refer 5.3.3) 8. Define TQM. (Apr 11) (Refer 5.8.1) 1 mark
Write Short Notes: 1. Quality (Refer 5.8) 2. Six Sigma methodologies (Refer 5.9.1 & 5.9.2) 3. Modules of ERP (Refer 5.1.4) 4. SCM examples (Refer 5.2) 5. CRM (Refer 5.3 & 5.3.1 & 5.3.3) 6. Call Centre (Refer 5.4.1 & 5.4.2) 7. BPO (Refer 5.5 & 5.5.1) 8. KPO (Refer 5.6 & 5.6.1) 9. Factors affecting International Business (Refer 5.7.5)
3 marks
Answer the following in detail: 5 marks 1. Explain the activities of supply chain management. (Apr 11) (Refer 5.2& 5.2.1) 2. What is ERP? Explain different modules of ERP. (Oct 11) (Refer 5.1 &5.1.4) 3. Give the advantages of ERP. (Apr 11, Apr 12) (Refer 5.1.5) 4. What is economic globalization?(Refer 5.7) 5. Differentiate between Package ERP Solution Vs Custom Development ERP Solution. (Refer 5.1.3) 6. Explain the CRM process. (Refer 5.3.2) 7. Explain the advantages of Six Sigma process. (Refer 5.9.5) 8. Give any five features of TQM. (Oct 11) (Refer 5.8.1 & 5.8.2) 9. Explain activities of SCM. (Apr 12) (Refer 5.2)
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